The Fed’s Take on the Economy

By at 2 May, 2019, 9:07 am

by Raymond J. Keating-

Did the Fed’s take on the economy change via the Federal Open Market Committee (FOMC) statement released on May 1? Yes and no.

First, the Fed upgraded its take on growth. In its March statement, the Fed said that “growth of economic activity has slowed from its solid rate in the fourth quarter.” However, in its current release, the Fed noted that “since the Federal Open Market Committee met in March … economic activity rose at a solid rate.”

That shift also was reflected in the Bureau of Economic Analysis’ initial estimate of first quarter GDP growth coming in at 3.2 percent, which was stepped up from the fourth quarter 2018’s 2.2 percent.

However, it also was noted in this latest FOMC statement, “Growth of household spending and business fixed investment slowed in the first quarter.” That, too, was reflected in first-quarter GDP, with real personal consumption expenditures growth slowing from 2.5 percent in the fourth quarter 2018 to 1.2 percent in first quarter 2019, and real nonresidential investment (i.e., business investment) growth slowing from 5.4 percent in the fourth quarter of last year to 2.7 percent in the first quarter of this year.

As for inflation, it remains tame, and the Fed chose to “maintain the target range for the federal funds rate at 2-1/4 to 2-1/2 percent.”

Source: Federal Reserve Bank of St. Louis, FRED

Finally, as noted in the above chart, the Fed thankfully has continued to work to rein in the unprecedented explosion in the monetary base (currency plus bank reserves) that began in late summer 2008. That process needs to continue to remove related uncertainty in the market and economy.


Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.

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