Now the Fed has a bigger problem than it had last December, when the president started pressuring it not to raise interest rates.
Last Friday, the Bureau of Economic Analysis said that the nation’s economy — as measured by the gross domestic product — grew at a 3.2 percent annual rate in the first quarter.
The first problem is that amount of growth was way above the expectations that the “experts” had just last week. And, more importantly, it blew away the predictions of almost no growth that even the regional central banks had at the start of the year.
The Fed’s policy committee meets this week and while there’s no chance of a move in interest rates, the GDP number will have the governors thinking.
The first three months of 2019 were supposed to have been hurt by unusually cold and snowy weather in parts of the US, as well as a long government shutdown. But the economy apparently shrugged off those main problems and grew at a nice pace.
There are also a couple of other things that you need to understand. One is that this particular estimate of the GDP is filled with guesses. Look it up on the BEA Web site and you’ll see the table of contributing factors is filled with estimates.
Another thing is that one of those estimates says that inventory levels grew sharply between January and March. What that means is that a lot of goods are sitting on shelves still waiting to be sold.
Whenever that happens, the sales usually take place in the next quarter. And stores and warehouses stop ordering until inventory levels are reduced. So even though that might have helped the first quarter, it could cause growth to weaken during the rest of the year.
Now, back to the Fed.
Fed Chairman Jerome Powell and his confused crew have already indicated that they might not raise interest rates the one, two or three times in 2019 that people had been expecting. But if the economy continues to grow at this pace, the financial markets will raise borrowing costs no matter what Powell and the president want.
Source: Read Full Article