We doubt that the unexpected 1.4% annualised decline in first-quarter GDP will stop the Fed from hiking its policy rate by a bigger 50bp next week or from launching quantitative tightening. The Fed will stress the ongoing strength of employment growth, the temporary impact from the Omicron wave and the pick-up in the growth rate of final sales to private domestic purchasers, which is arguably a better gauge of underlying demand. But the bottom line is that with inflation rampant it simply doesn’t have a choice; policy needs to be tightened rapidly regardless of the costs to the real economy.
Payrolls Drop-In (6th May, 10:00 EDT/15:00 BST): Our US Economics team will be online shortly after the April employment report to answer your questions and discuss what the latest payrolls data mean for our outlook on US growth, inflation and Fed policy. Register now
Become a client to read more
This is premium content that requires an active Capital Economics subscription to view.
Already have an account?
You may already have access to this premium content as part of a paid subscription.
Sign in to read the content in full or get details of how you can access it
Register for free
Sign up for a free account to gain:
- Unlock additional content
- Register for Capital Economics events
- Receive email updates and economist-curated newsletters
- Request a free trial of our services