ZCZC
BCN-18
US-ECNOMY-GDP
U.S. Q2 GDP data support Fed rate cut: institutions
NEW YORK, July 28, 2019 (BSS/Xinhua) – Wall Street institutions and
economists at leading investment banks believe that slower gross domestic
product (GDP) growth and lower-than-expected core personal consumption
expenditures (PCE) price index of the United States in the second quarter
would support the Federal Reserve cutting the Fed funds rate next week.
Data released by the U.S. Department of Commerce on Friday showed that U.S.
GDP grew at a 2.1-percent annual rate in the second quarter, decelerating
from the 3.1 percent expansion in the previous quarter, but was above
consensus expectations of 1.8 percent.
The core PCE price index, an inflation gauge preferred by the Fed that
excludes the volatile food and energy prices, increased 1.8 percent,
continuing to undershoot the Fed’s 2 percent inflation target.
Both the GDP growth and inflation data of the United States were revised
back to 2014 and showed “there was weaker momentum heading into this year,”
according to a research report released by the Bank of America Merrill Lynch
on Friday.
The report noted that the recent data and revisions indicate “support for
the cut” by the Fed as they “showed growth momentum to be weaker,
particularly investment which they are most worried about, and core PCE
inflation is a touch softer.”
The viewpoint was echoed by the Capital Economics, which said in a note
Friday that the slowdown in U.S. GDP growth in the second quarter “justifies
a 25-basis-point cut by the Fed next week.”
The Fed will hold its policy meeting on July 30-31. Investors have priced
in a 25-basis-point benchmark interest rate cut.
Likewise, Steve Englander, head of global G10 FX research and North America
macro strategy at Standard Chartered Bank, and Sonia Meskin, U.S. economist
at Standard Chartered Bank, indicated in their research report that the
undershoot in core inflation “widens the gap versus the Taylor-rule target
and increases the zero-lower-bound risk.”
Both effects would “support expectations for further easing,” the report
said.
BSS/XINHUA/HR/1455