Source: Jin10 Data
In the latest quarterly GDP report, consumer spending was significantly lowered, and Fed's Borstic maintained his prediction that Fed may lower interest rates once in the fourth quarter.
Data released on Friday shows that the latest estimate released by the US Economic Analysis Bureau on Thursday shows that the annual rate of US gross domestic product (GDP) in the first quarter was 1.4%, slightly higher than the previous estimate of 1.3%. It is noteworthy that the report rang the death knell for a significant slowdown in consumption. The Atlanta Fed's GDPNow model now expects US second-quarter GDP growth to be 2.7%, previously forecast at 3%.
According to LPL Financial's chief economist, Jeffrey Loh, “Residential fixed investment is stronger than initially reported, with a 16% month-on-month growth contributing about 0.6% to the overall growth of 1.4% in GDP for the first quarter. However, consumer spending has once again been downgraded, indicating that the trend of consumer spending for the rest of the year seems to be more sluggish.” Real personal consumption expenditures for the first quarter in the US recorded a final seasonally adjusted rate of 1.5%, a significant drop from the previous 2%.
Loh said that the latest report on US first-quarter economic growth is likely to prompt the US Federal Reserve to start cutting interest rates later this year. He said: “We expect consumer and business activity to slow down in the second half of 2024, providing ample reasons for the Fed to begin cutting interest rates later this year.”
Atlanta Fed President Bostic said on Thursday that he stuck with his forecast that the Fed will cut interest rates once this year, at some point between October and December.
In a new article published on the Atlanta Fed website, Bostic said: “Given everything, I still think it's possible that the fed funds rate could be lowered in the fourth quarter of this year.”
At the same time, he said he was not “locked” into any particular policy path.
Bostic wrote: “In some possible cases, further rate cuts, no rate cuts, or even rate hikes may be appropriate.” He added that he would make judgments based on data and “real situations”.
Bostic is a voting member of the Federal Open Market Committee (FOMC) this year. Since March, he has been predicting that the Fed will cut interest rates once this year.
At the FOMC meeting held in mid-June, the median of Fed officials' forecasts showed that there will be only one 25 basis point rate cut this year, lower than the three in March's forecast.
When discussing the economy, Bostic said he believed the labor market was weakening.
He said: “People may think that today's labor market is loosening, but it is not loose.”
On the issue of inflation, Bostic said the latest data “contradicts” the idea that progress against inflation had stalled.
He said: “If things develop as I expect—orderly slowing of labor market and economic activity—then the inflation rate should drop to 2% in 2025 or slightly later.”
Bostic said business contacts in the service sector, with the stickiest prices, tell him that their pricing power is weakening.
Editor/Lambor