Capitol Report: For the Fed, it’s the rebound that matters
WASHINGTON (MarketWatch) — The Federal Reserve has already indicated that it isn’t too bothered by the weak first quarter.
The key factor for the U.S. central bank going forward is the strength of the bounce back.
“It’s the extent of the rebound that will be critical in determining the timing of the Fed’s first move on interest rates,” said Chris Williamson, chief economist at Markit, in a note to clients.
New data from the government Friday showed that the economy got off to a weak start in 2015, shrinking at an 0.7% annual rate in the first quarter, down from the prior estimate of a tepid 0.2% increase.
Bricklin Dwyer, economist at BNP Paribas, said the first quarter GDP report should give the Fed confidence that the soft patch was likely driven by temporary disruptions.
Read more:U.S. GDP turns negative in first quarter, again
What matters for the Fed is the second-quarter data.
St. Louis Fed President James Bullard on Thursday said he wanted to hike rates this year but needed “confirmation” of his hunch that the first quarter weakness wouldn’t last.
Barclays said Friday its Q2 GDP tracking estimate was 2.5%. This is down from expectations earlier in the year, of second quarter growth over 3%.
The Chicago PMI report also injected some concern that the economy may be struggling to move beyond the first quarter soft-patch, said Millan Mulraine, deputy head of U.S. strategy at TD Securities.
The index dipped back into contractionary territory, falling to 46.2 from 52.3 the month before.
Fed officials will gather on June 16-17 to sent policy for the next six weeks. While Fed officials have taken pains not to take a rate hike off the table at that meeting, economists don’t think policymakers will have enough data to justify a rate hike. Most think the central bank will wait until September.