Markets Focus on US Q2 GDP after Fed Comments
Upon the expected verdict that the Federal Reserve will keep interest rates unchanged, markets steered their attention towards the announcement of the US second quarter gross domestic product set on Friday.
The US central bank expects a significant recovery from the previous quarter.
Now that the second quarter has ended, the upcoming GDP figure will gauge how the world’s largest economy performed in the April-June period. Consensus forecast an increase of 2.6% from Q1’s 1.1% growth.
Besides the GDP growth for the second quarter on Friday, markets will closely monitor figures related to the US central bank’s dual mandate.
Next week, the core PCE price index for June will be published on Tuesday, succeeded by the July jobs data report with non-farm payrolls on Friday.
However, analysts had started to dampen their Q2 GDP expectations due to the worse than anticipated durable goods data out previously on Wednesday.
Q2 GDP Forecasts
Morgan Stanley and JP Morgan slashed their projections from 2.3% to 2.2% after the data was disclosed due to the marginally lower views for fixed investment and inventories.
For the same reason, Atlanta Fed cut its Q2 GDP forecast to 2.3% from 2.4%.
The New York Fed had last projected a growth of 2.2%, but the regional bank had not renewed its estimates since July 15. This is due to the inconsistency with the blackout period in the run-up to the Fed’s policy meeting.
The next update will not make it in time until Q2 GDP is revealed, and will most likely end up focusing for forecasts on Q3 GDP. Third quarter estimates had been 2.6%.
Fed on Holding Interest Rates
On Wednesday, the US central bank had left interest rates on hold but mentioned near-term threats to the US economic outlook had already vanished, bringing the renewal of a monetary policy tightening this 2016.
While Fed officials claimed to continuously watch closely the inflation data, and global economic and financial developments, they noted less concerns about potential shocks that could steer the economy off the current path.
In its two-day policy meeting, the bank left its benchmark overnight interest rate in a range of 0.25% to 0.50%.
The Fed also said the economy had rebounded at an adequate rate, and the job market had recovered as well in June. Household spending had also been strengthening and indicated a labor utilization increase.
Most policymakers in the US central bank had advised caution in hiking rates until there was concrete progress in pushing inflation toward the Fed’s 2% goal. Currently, the bank’s preferred inflation rate is at 1.6% and has drifted below the target for over four years.
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