According to a recent estimate from the New York Federal Reserve, the U.S. economy is expected to grow at an annual rate of about 2.2% in the current quarter. The weekly New York Fed's Staff Nowcast reveals that the economy has been on an upward trend since late July. It is worth noting that the regional Fed bank had discontinued the real-time estimate during the pandemic but has now reinstated the series on a weekly basis.
Compared to the Atlanta Fed's GDPNow model, which predicts a growth rate of 5.6% for the current quarter, the New York Fed's estimate is significantly lower. However, economists emphasize that the strength of the economy will play a pivotal role in determining whether the Federal Reserve needs to raise its policy interest rate to address inflation concerns.
Fed officials have already projected a slowdown in economic growth for the second half of the year, with a forecast of only 1% growth for 2023. The average growth rate for U.S. gross domestic product in the first six months of this year has been approximately 2%. If the economy reaccelerates, it is likely that inflation will also rise. Fed officials had been hoping that slower economic growth would lead to reduced inflationary pressures.
James Bullard, former president of St. Louis Fed and current dean of Purdue's business school, warns that faster growth could result in higher-than-anticipated inflation numbers. He suggests that there is a possibility that the Fed will need to implement more than one interest rate hike this year, contrary to what the central bankers have currently penciled in. Bullard shares this concern in a recent CNBC interview.
The first official government estimate of third-quarter growth will be released on October 26. However, it is important to note that the U.S. GDP statistics can change rapidly, as demonstrated by the potential revisions that could be made to the growth estimates for the first half of this year. The Commerce Department is set to release benchmark updates to GDP data by the end of September, which may lead to significant adjustments. While GDP revisions can be substantial, the Fed typically pays closer attention to the unemployment rate and inflation data when assessing the health of the economy.
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