by paul gomme and peter rupert
The BEA came out with two important announcements on the heels of the FOMC decision to not raise the Federal Funds Rate (good call). While the price indices were higher than the Fed’s 2% target, they were in the “what should we do now” range. That is, the members of the FOMC were debating whether to lower or keep the rate at its current level and what to say about future policy.
Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Michael S. Barr; Michelle W. Bowman; Lisa D. Cook; Philip N. Jefferson; Anna Paulson; and Christopher J. Waller. Voting against this action were Stephen I. Miran, who preferred to lower the target range for the federal funds rate by 1/4 percentage point at this meeting; and Beth M. Hammack, Neel Kashkari, and Lorie K. Logan, who supported maintaining the target range for the federal funds rate but did not support inclusion of an easing bias in the statement at this time.
The PCE price index rose 8.23% in March. Year-over-year it rose 3.5% and our preferred trend measure rose 5.30%.
The core PCE (ex food and energy) rose 3.58% on an annual basis, year-over-year 3.2% and the trend measure up 3.86%.
REal GDP
The BEA also announced that the advance estimate of real GDP for Q1 increased 2.0%. Personal Consumption Expenditures rose 1.6% and Private Investment rose 8.7% with the equipment component of investment rising 17.2% and Intellectual property products rising 13.0%. The Government sector rose 4.4%.
On a more negative note, both residential and non-residential structures investment have been in negative territory for quite some time.
Policy outlook
The real side of the economy continues a steady increase at the same time inflation has moved up considerably. It is interesting to conjecture what the Fed votes would have been had these reports come out before yesterday’s meeting. Mind you, today’s releases should not be a huge surprise to the FOMC. The Consumer Price Index release earlier this month signaled higher inflation, and economists at the Board of Governors are really good at now casting, so the National Income and Product Accounts data was almost certainly largely known.
