This Week's Forecasts & Trends E-Letter
Thursday’s GDP Report May Hold Big Surprises
July 28, 2015
The next few days should be an interesting time in the markets. The Fed Open Market Committee (FOMC) is meeting today and tomorrow and will release its latest policy statement at the conclusion of the meeting. While it is not expected that the Committee will vote to raise the Fed Funds rate at tomorrow’s meeting, Fed Chair Janet Yellen has been talking hawkishly about a rate hike of late.
Friends, business associates and clients increasingly ask me: Why is the Fed so intent on raising interest rates? The US economy is not that great, the global economy is slowing down, inflation is practically nonexistent and commodity prices are signaling deflation. So why on earth is the Fed hell-bent on raising rates when much of the world is doing just the opposite? I’ll tell you why as we go along today.
Then on Thursday, we get the first estimate of 2Q GDP from the Commerce Department, and there is an unusually wide range of pre-report estimates. While there is broad agreement that the economy bounced back after the disappointing 1Q rate of -0.2%, some forecasters believe the 2Q estimate will be less than 1%, while others believe it will be north of 3%. That’s a huge spread! The Atlanta Fed’s rolling “GDPNow” indicates 2Q growth of 2.4%.
Yet perhaps the most important news of this week will be the Commerce Department’s annual revisions to its GDP numbers going back several years on Thursday. While such revisions happen every year, this year’s revisions and changes are expected to be more significant than usual as the government tries to smooth-out “seasonal adjustments.” Many expect that the 1Q GDP estimate of -0.2% could be revised to a slightly positive number. This will be big news.