The latest USA GDP growth figures may calm investors’ nerves, but raise questions regarding the Fed’s monetary policy

Feb 26 • Mind The Gap • 1038 Views • No Comments

On Wednesday February 28th at 13:00pm GMT (U.K. time), the latest GDP figures relating to the USA economy will be published. There are two metrics released; the annualized year on year growth figure and the figure up to and including Q4. The forecast is that the YoY figure will fall to 2.5% from the 2.6% registered in January, whilst the Q4 figure is predicted to remain at the Q3 level of 2.4%.

The latest GDP growth figures will be closely monitored for several reasons: the likely actions of the Fed/FOMC in terms of monetary policy, the likely actions of the treasury and USA administration in terms of fiscal policy, the implication of the growth figure on inflation and what the growth figure represents, in relation to the recent USA stock market correction, experienced in late January early February.

The hard economic data, delivered by the various USA statistics agencies (mainly the BLS), is not necessarily as robust as the unchallenged, mainstream media narrative would have investors believe. The growth in the USA economy witnessed in 2017 was underpinned by debt, both consumer/business debt and government debt, which is now at 105.40% when previous administrations considered a figure above 90% to be concerning. Whilst the Fed still sits on a $4.2 trillion balance sheet with no plan to quantitatively tighten, as they also try to balance the advantages of a low dollar, versus any long term damage it may cause. Wages have crept up in real (inflation adjusted) terms and are still stuck back at 1990’s levels for Americans, many of whom have supplemented their income gaps with debt.

Overall, there are stresses building up in the USA economy, stresses that could be heightened if GDP rises quickly and the FOMC committee members decide that the economy is robust enough to accommodate more than the three interest rate rises already projected for 2018. Therefore, should the GDP figure beat forecast when the figures are released on Wednesday, investors may take it as evidence that the FOMC has enough room to raise rates further, without causing any harm to growth. This could in turn cause FX traders to bid up the value of the U.S. dollar.

The U.S. GDP figures are some of the most volatile economic calendar releases that FX traders receive, the potential for moving USD pairs is extremely high, therefore traders should carefully consider the management of any dollar positions they have in the market, as the data is released.

KEY ECONOMIC METRICS RELEVANT TO THE CALENDAR RELEASE.

• GDP YoY 2.5%.
• GDP QoQ 2.4%.
• Inflation 2.1%.
• Wage growth 4.47%.
• Interest rate 1.5%.
• Jobless rate 4.1%.
• Govt debt v GDP 105.4%.

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