Atlanta Fed Raises Q-2 GDP Growth View to 3.2%

Atlanta Fed Raises Q-2 GDP Growth View to 3.2%

Atlanta Fed Raises Q-2 GDP Growth View to 3.2%

The US economy is growing at a 3.2% annualized pace in Q-2 of Y 2017 based on data on May retail sales and consumer prices, the Atlanta Federal Reserve’s most recent GDP Now forecast model showed.

The latest Q-2 GDP (gross domestic product) estimate was stronger than the previous reading of 3.0% calculated on 9 June, the Atlanta Fed said.

The revision came just after the Fed raised interest rates Wednesday for the 2nd time in 3 months and said it would begin cutting its holdings of bonds and other securities this year, signaling its confidence in a growing US economy and strengthening job market.

In lifting its benchmark lending rate by a 0.25% to a target range of 1.00 to 1.25% and forecasting 1 more hike this year, the Fed seemed to largely brush off a recent run of mixed economic data.

The FOMC said the economy had continued to strengthen, job gains remained solid and indicated it viewed a recent softness in inflation as largely transitory.

The Fed also gave a first clear outline on its plan to reduce its $4.5-T portfolio of Treasury bonds and mortgage-backed securities, most of which were purchased in the wake of the Y’s 2007-2009 financial crisis and recession.

It expects to begin the normalization of its balance sheet this year, gradually ramping up the pace. The plan, which would feature halting reinvestment’s of ever-larger amounts of maturing securities, did not specify the overall size of the reduction.

“What I can tell you is that we anticipate reducing reserve balances and our overall balance sheet to levels appreciably below those seen in recent years but larger than before the financial crisis,” Fed Chairwoman Janet Yellen said in a press conference following the release of the Fed’s policy statement.

She added that the balance sheet normalization could be put into effect “relatively soon.”

The Fed has now raised rates 4X as part of a normalization of monetary policy that began in December 2015. The central bank had pushed rates to near Zero in response to the financial crisis.

The FOMC also released their latest set of quarterly economic forecasts, which showed only temporary concern about inflation and continued confidence about economic growth in the coming years.

They forecast U.S. economic growth of 2.2% in Y 2017, an increase from the previous projection in March. Inflation was expected to be at 1.7% by the end of this year, down from the 1.9% previously forecast.

A retreat in inflation over the past 2 months has caused jitters that the shortfall, if sustained, could alter the pace of future rate hikes. But the Fed maintained its forecast for 3 rate hikes next year.

Stay tuned…

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