Will Tuesday’s GDP upgrade to its fastest growth in more than 10 years nudge – or push – the Federal Reserve to raise interest rates earlier than Janet Yellen recently signaled, i.e., no earlier than the first quarter of next year?
Alas, probably not.
The final revised estimate for third quarter GDP showed the economy growing at a robust 5% annualized rate, the fastest pace in 11 years. That was far higher than the previous estimate of 3.9% and well above both the 4.3% rate the Street was looking for as well as the most optimistic individual forecast of 4.5%. It was also up from the second quarter’s growth rate of 4.6%.
Ninety minutes later, the Commerce Department came out with another report that showed personal spending rising 0.6% in November, the most in three months, while personal income gained 0.4%, the strongest pace in five months.
A week earlier, the Securities Industry and Financial Markets Association predicted that GDP growth would hit 3% next year, which it says “would be the strongest growth in nearly a decade.”
If this latest batch of strong economic news still doesn’t convince the Fed that it should start raising interest rates sooner than it indicated only a week before, we can only conclude that the Fed has lost sight of its statutory mandate, namely to “foster maximum employment and price stability.”
Instead, it has become how to best finesse its extrication from its near-zero interest rate policy and start raising rates without setting off a giant market selloff. So the easy thing to do, as most other major decisions are made in Washington, is to do nothing and deal with it later, whenever that is. Which of course by then the problem will have grown much worse and much more difficult to deal with.
At its FOMC monetary policy meeting the week before, the Fed said that it “judges that it can be patient” in normalizing monetary policy, adding that “it likely will be appropriate” to maintain its near zero target rate range for a Continue reading "Does the big GDP revision get us any closer to 'normal' rates?"