The myriad of bad economic news throughout the first quarter was punctuated today by the Commerce Department report that reported U.S. gross domestic product barely grew, only rising at a 0.2 percent annualized pace in the first three months of 2015. As usual Federal Reserve officials sounded upbeat in their statement today, and as expected there was no sign that they intend to raise interest rates any time soon, due to no solid or sustained turnaround in economic growth.
The economy has continued to decelerate and several key indicators need to show a convincing turn around before Fed officials can be confident that labor markets will continue to improve and inflation will rise back toward the central bank’s 2 percent goal.
The absence of demand in business investment has been especially apparent while bookings for non-military capital goods excluding aircraft, a proxy for future corporate spending on new equipment, keep spiraling and have continued their decline over the last seven consecutive months.Seven of the 10 S&P 500 sectors ended lower, with just energy, financials and materials in positive territory.
In conclusion Fed officials said they continue to “expect that, with appropriate policy accommodation, economic activity will expand at a moderate pace.” They also acknowledged that growth slowed “during the winter months, in part reflecting transitory factors.”, which is another way of saying that they are trying to look through a terrible first quarter.
Investors’ expectations of a rate increase at the next meeting in June are practically zero, and even a September rate hike could be out of the cards if the economy doesn’t pick-up momentum. As we know it takes time for solid and convincing turn a rounds in our U.S. economy to become evident, and Fed officials probably don’t want to risk a policy error of raising rates to soon.
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