Federal Reserve Interest Hike Seems Improbable After GDP Expectation Adjustment

In the financial sector a lot of experts are focusing their attention on what the Federal Reserve plans to do. Although quite a few people expect another interest rate hike, that seems less and less likely every week. Earlier today the Fed lowered their quarterly GDP outlook for the US for the remainder of the year. An increase in interest rates will probably have to wait until 2017, at the earliest.

The Fed Faces The Truth And Lowers Expectations

One thing that people should take into account is how there is a vast difference between what is going on and what spokespeople will share with the world. Everyone who has paid attention to the financial sector knows the Fed cannot raise the US interest rates this year, as there is zero positive evidence for doing so. Despite that public secret, its spokespeople continue to state how things are looking good.

Sooner or later the truth will come to the surface. In the case of the Federal Reserve, that truth means lowering GDP expectations for Q3 and Q4 of 2016.  This decision was made based on “new data on regional business activities.” There is only so much weight to hollow words, and the real evidence will not remain obscured indefinitely.

Unfortunately, this also means that America’s economy is performing worse than what most people were led to believe. Although the original forecast predicted a growth of 2.30%, that number has now been corrected to 2.22%.  This may seem like a minor adjustment, but it shows that things are not looking as positive as some may want people to believe.

In the end, it comes down to how a new Fed interest rate hike remains very unlikely this year. It is good to see, however, that the US economy is still growing, albeit slower than anticipated, and that improved interest rates are still possible for the coming years. For now, though, not dropping into negative rates, as some other banks have done, is a victory in itself.

At the same time, it has become all but impossible to predict how the economy will behave. With these turbulent times, taking things one day at a time seems to be the best plan of action. Then again, some financial experts get paid to predict possible outcomes in  coming months and quarters. Unfortunately, they have been proven wrong once again.

For now, there is no reason to panic in the US just yet. It has become apparent, however, that things will need to change if this minor positive trend has any chance of continuing into the next year. Small steps need to be taken one at a time, but without further guidance there will be little to no further GDP growth.

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