Fed rate hike in June more likely
The nation’s total economic output — also known as gross domestic product — was revised to a 0.8% annual rate for the January-March period, the Commerce Department said Friday.
Although that was still weak growth, it marked an improvement over the initial estimate last month of 0.5%, which would have been the worst quarterly performance in two years.
Economists expect much stronger overall economic growth from April through June. A closely watched model from the Federal Reserve Bank of New York forecasts that the economy is growing at a 2.9% annual rate in the second quarter. That would be the best performance in a year.
Consumers appear poised to spend more after being cautious in the first quarter as concerns about global growth triggered a steep downturn in financial markets.
Retail sales increased in April at their fastest pace in nearly a year. And the University of Michigan said Friday that its consumer sentiment index, a leading barometer, rose substantially in May from the previous month.
“Consumers are satisfied that the volatility and stock market worries of the first part of the year are behind them,” said Chris G. Christopher Jr., director of consumer economics at IHS Global Insight.
A strong economic rebound this spring would increase the likelihood that Fed policymakers would nudge up their key shortterm interest rate when they meet in June.
They increased the benchmark federal funds rate by 0.25 percentage point in December after keeping it near zero for seven years in an attempt to boost the recovery.
At the time, central bank policymakers signaled that they expected four similar increases in 2016, but that forecast was cut in half in March as the economy stumbled at the start of the year.
If Fed officials are going to raise the rate twice this year — and do so gradually — they need to act soon.
They indicated in the minutes of their April meeting that a 0.25 percentage point increase “likely would be appropriate” in June if the economic growth was improving in the second quarter, the labor market was continuing to strengthen and inflation was showing signs of increasing.
In recent days, central bank policymakers have publicly indicated another rate hike is nearing.
On Thursday, Fed Gov. Jerome Powell said that, “depending on the incoming data and the evolving risks, another rate increase may be appropriate fairly soon.”
James Bullard, president of the Federal Reserve Bank of St. Louis, told CNBC on Tuesday that it was time for the Fed to “pull the trigger” on another rate hike.
And Eric Rosengren, president of the Federal Reserve Bank of Boston, said in an interview with the Financial Times on Sunday that the U.S. economy was “on the verge” of meeting the conditions for a rate increase.