Earlier today the Department of Commerce released data on the latest GDP growth rate data for Q1. To say the numbers were weak is an understatement at best. GDP only grew at a rate of 0.2% in the last quarter, which was borderline stagnant.
Previously GDP had been growing at a rate of 2.2% in Q3 and 5% in Q4 of 2014. The weaker numbers took many by surprise. However, not all were wrong with the lower than usual growth rate. The Federal Reserve Bank of Atlanta had predictions that indicated that GDP growth would be ~0.1% for Q1.
However, now that the data is released what does that mean for the rest of the year? Scott Sumner, an economist at Bentley University with a focus on monetary policy, believes that the GDP growth for the rest of the fiscal year would have to be at a rate of 4.8% per quarter in order to achieve an annual rate above 3.5%. This reality makes every economist become aware of the elephant in the room. Are Yellen & Co really going to increase rates this sooner rather than later even after such an ugly report and unlikely forecast in GDP growth?
Unless something is done to increase aggregate demand/ total GDP or reel the dollar back into control it might be an even uglier 2nd quarter. Next thing to keep an eye on is the upcoming data on inflation in May which might shed some light on when the Fed will increase rates.