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Clarksville, TN – As expected, the Federal Open Market Committee left short-term interest rates unchanged, reaffirmed its forward guidance on the federal funds target rate, and trimmed another $10 billion from the monthly pace of asset purchases (to $35 billion starting in July). In the Summary of Economic Projections, Fed officials lowered their projections for 2014 GDP growth.
However, that was due entirely to the reported decline in 1Q14 GDP. Implicitly, Fed officials are expecting a 3.1% to 3.4% average pace of GDP growth in the final three quarters of 2014. The forecasts ranges for GDP growth in 2015 and 2016 were the same as the ones made in March.In her press conference, Fed Chair Janet Yellen remained optimistic that growth would pick up, citing continued monetary policy accommodation, diminishing fiscal drag, easing credit conditions, higher home prices, and rising equity prices.
She downplayed the recent pickup in the Consumer Price Index as “noise.” While some noting downside risks to global growth, she was optimistic that growth in emerging economies would improve. The financial markets rallied, as she did not say anything unsettling.
Next week, many of the economic reports have potential to surprise and could move the financial markets, but nothing is going to add much to the economic outlook for the second half of the year. The revision to the 1Q GDP estimate will receive a lot of attention. Usually, there’s not much difference between the 2nd and 3rd estimates of GDP growth.
However, some are forecasting a sharper decline in first quarter GDP (-2.0% or lower), based on the Bureau of Census’ quarterly report on selected services (which showed a lot less healthcare spending than was reported in the GDP numbers). International trade data also had benchmark revisions.
However, it’s unclear whether revised source data will show up more in the 3rd estimate of GDP or in the annual benchmark revisions (due July 30th). Regardless, the data in the following week, including the June Employment Report, will be much more important.
Consumer Money Rates
Treasury Yield Curve – 6/20/2014
S&P Sector Performance (YTD) – 6/20/2014
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The information contained herein has been obtained from sources considered reliable, but we do not guarantee that the foregoing material is accurate or complete. Data source: Bloomberg, as of close of business June 19th, 2014.
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