The Fed is flailing. Our view remains that last week’s rate cut wasn’t needed, nor are further rate cuts in the months ahead. Nominal GDP is up 4.0% in the past year and up at a 5.0% annual rate in the past two years. Gold is up 12.3% so far this year. There are plenty of excess reserves in the banking system. The Fed is not tight.
Solid GDP Report for Q2…Core GDP – combining personal consumption, business investment, and home building – grew at a very solid 3.2% annual rate in Q2. Meanwhile, profit reports are widely beating expectations. The economy is much stronger than conventional wisdom thinks and has been since 2009.
Temporary Tepid Growth for Q. This Friday, the government will release its initial estimate of real GDP growth in the second quarter, and the headline is likely to look soft. At present, we’re projecting an initial report of growth at a 1.8% annual rate.
Farewell to Data Dependence…comments made by Powell at the press conference after the meeting, suggested a 25 basis point rate cut was all but in the bag for the next meeting at the end of July. But with six weeks between June and July’s meetings and a full economic data cycle, what we have seen so far shows that – if the Fed really is data dependent – they shouldn’t cut rates.