Fear Not, Economic Growth Has Not Been Tapered
This past month’s disappointing economic news and pullback in the stock market have raised fears that the gradual reduction in the Fed’s monthly securities purchases is sapping the economy’s momentum. The transmission mechanism is weakening currencies and raising interest rates in some emerging markets, which is stoking fears that global economic growth may not pick up as much as hoped. Recent U.S. economic data, particularly reports relating to employment and industrial activity, have also been disappointing.
Our forecast for U.S. economic growth during the first half of 2014 has been scaled back somewhat, but growth for the year as a whole is actually a bit stronger than we had a month earlier. This somewhat paradoxical result is primarily due to the buildup in inventories that occurred during the second half of 2013, which bolstered economic growth during that period but set the economy up for a payback early this year.
Harsh winter weather has also made it a bit more difficult to determine how much of the slowdown is temporary and how much may be longer lasting. We suspect that much of the slowdown is temporary, but it may take until late spring or early summer before we see evidence of that in the data. This all makes for an interesting start to Janet Yellen’s term as Fed chair. We do not expect the Fed to alter its plans to reduce securities purchases by $10 billion at each FOMC meeting. The
Fed may opt to extend its forward guidance on interest rates, citing persistently low inflation as justification.
Read the full report: Economic Research
Wells Fargo