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Slow GDP Growth Should Give Fed Pause

GDP imageThe slower-than-expected growth in gross domestic product during the first quarter of the year is likely to cause the Fed to wait to raise interest rates until later in the year, said Bob Hughes, senior research fellow at the American Institute for Economic Research.

The Commerce Department reported this morning that real GDP increased 0.2 percent in the first quarter. That came amid a confluence of factors like bad weather, a strong dollar, and disruptions at West-Coast ports, which restrained economic activity, Hughes said. The energy industry suffered from the impact of lower crude prices, he added.

The weakness, he noted, was broad-based, across nearly all sectors of the economy. Indicators of inflation remain well below the Fed’s targets, he said.

“Our research suggests GDP is likely to rebound in the second quarter, led by a pickup in consumer spending,” Hughes said. “However, inflationary pressures remain modest, and core price index increases are expected to remain below Fed targets for the next few quarters. Fed policy is likely on hold until well into the second half given the slow pace of economic activity and below-target increases in prices.”

Hughes cautioned that the first estimate of any quarter’s GDP is often subject to sizable revisions.

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