Will GDP Impact Fed’s Decision to Cut Interest Rates?

The Fed will meet at the end of the month to determine whether to slash interest rates for the first time in nearly a decade. Its decision, though, could be impacted by Friday’s GDP report, according to the New York Post. 

The report states the Fed is expected to cut interest rates by one quarter of 1%.  Wall Street economists are expecting growth of around 2% for Q2 2019, which would be lower than the 3.1% growth during Q1 2019. 

Two-percent growth would be in line with the 2.2% growth for Q4 2018—a period of time the Fed was deciding to raise rates. 

The Post added that if Friday’s GDP report exceeds expectations, the financial markets are going to have some “pretty nervous days” until the Fed makes its decision on July 31. The Fed has said it will only cut rates to boost a slowing economy. 

On Monday, President Donald Trump signaled to the Fed that he believes now is the best time to cut interest rates.

“Very inexpensive, in fact productive, to move now,” the President tweeted. “The Fed raised & tightened far too much & too fast.”

Bloomberg reports that Fed Chairman Jerome Powell is looking to ease interest rates by around a quarter of a percentage point at the July meeting. Earlier this year, Powell stated that though the economy remained strong, "crosscurrents, such as trade tensions and concerns about global growth, have been weighing on economic activity and the outlook."

In a meeting of the Federal Open Market Committee (FOMC), Powell said that while jobs, wage growth, and consumer spending remained strong in the second quarter of 2019, growth in business investment "seems to have slowed notably, and overall growth in the second quarter appears to have moderated."

Additionally, two Federal Reserve Chiefs stated interest rates are unlikely to be cut in July. Federal Reserve Bank of Atlanta President Raphael Bostic told Bloomberg that he is “not seeing the storm clouds generating a storm yet,” while Thomas Barkin from the Richmond Fed said that with unemployment low and consumer spending, it’s “hard to make a case for stepping on the gas.’’