First quarter GDP, to be released on Thursday, is expected to slump to a paltry 0.7% annual rate from a 1.4% rate in the last three months of 2015, according to economists surveyed by MarketWatch.
“The Fed must be at least a touch concerned it is not seeing the domestic demand it expected,” said Avery Shenfeld, chief economist at CIBC World Markets.
So far Fed Chairwoman Janet Yellen has expressed no concern for the U.S. domestic economy. Early this month, she said the U.S. economy was in good shape.
The labor market looks solid but the trend in consumer spending has been disappointing, Shenfeld said.“We haven’t seen income flow into spending,” he said.
The GDP data will be released one day after the Fed’s interest-rate decision, due Wednesday at 2 p.m. Eastern, but the broad contours of the data will be well understood by the central bankers during their policy deliberations.
Fed officials are expected to hold rates steady next week for the third straight meeting.
“No one on the planet” expects the Fed to lift rates after their two-day meeting ends on Wednesday, said Sal Guatieri, senior economist at BMO Capital Markets.
The big issue is whether the Fed statement will hint about a move in June.
Adolfo Laurenti, global economist at Bank J. Safra Sarasin, says the Fed will tip its hand and signal a June rate hike.
Laurenti said the biggest uncertainty facing the global economy is the disconnect between the Fed and the financial markets over the pace of future rate hikes. Boston Fed President Eric Rosengren has said the Fed is likely to raise interest rates sooner and faster than the markets expect. Fed futures traders are barely expecting one rate hike this year.
Laurenti said the U.S. economy won’t delay the Fed.
“The U.S. picture will continue to improve. The second quarter will not be as strong as we like to see but it will not be as bad as the first quarter,” Laurenti said.
But Shenfeld said it is “too soon to hint about June.”
The Fed will want to be reassured that the economy is going to pickup before raising rates again, he said.
Jacob Oubina, senior U.S. economist at RBC Capital Markets, said the so-called Brexit referendum will keep the Fed on the sidelines in June.
Markets will be on edge for the from the possibility that the U.K. will leave the European Union. The Brexit referendum comes less eight days after the Fed’s June 14-15 meeting.
Reference: MarketWatch
Read more: http://www.marketwatch.
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