Just over two months ago, the Atlanta Fed “calculated” that Q1 GDP was going to be a pleasant 3.4%, confirming that the Fed had made the correct decision by hiking not only in December, but also last month. Since then, the Fed’s own GDP estimate has crashed in almost linear fashion, and as of this morning – after the latest disappointing retail sales report – it had plunged to just 0.5%, which, if accurate, would make Q1 the weakest quarter going back three years to Q1 2014.
From the regional Fed:
The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the first quarter of 2017 is 0.5 percent on April 14, down from 0.6 percent on April 7. The forecast for first-quarter real consumer spending growth fell from 0.6 percent to 0.3 percent after this morning’s retail sales report from the U.S. Census Bureau and the Consumer Price Index release from the U.S. Bureau of Labor Statistics.
Putting the Atlanta Fed’s forecast in context, a 0.5% GDP would mark the weakest quarter in 37 years, or going back to 1980, in which the Fed hiked rates. Then again, considering today’s abysmal CPI and retail sales data, the narrative to focus on next is not so much hiking, or balance sheet normalization, but when the Fed will resume easing, cut rates (as per Donald Trump’s recent suggestion) and/or launch QE4.
