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Low inflation could also lead the Fed to continue its bond purchases. The Fed's preferred inflation gauge, which is updated as part of the consumer spending report, showed that prices fell 0.3 percent in April and increased just 0.7 percent in the past 12 months. Still, economists say the Fed's stimulus is most tied to the health of the job market, which has improved in recent months. Employers have added an average of 208,000 jobs a month since November. That's well above the monthly average of 138,000 during the previous six months. Greater hiring is among several trends that could partly offset the impact of the tax increases and revive spending later this year. Consumer confidence surged in April to a five-year high, according to the Conference Board, as Americans' outlook on the job market improved. And on Friday, the University of Michigan's survey showed consumer sentiment rose this month to its highest level since July 2007. Home prices have surged 11 percent over the past year. Rising home tend to make homeowners feel wealthier and more likely to shop. Some economists estimate that for every dollar increase in home values, consumer spending can rise as much as 10 cents.
[Associated
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