- Narayana Kocherlakota, Minneapolis Fed President
The world's number economy contracted in the first quarter depressed by brutal weather and a higher-valued Dollar. The government revised its gross domestic product estimate to show it falling at a 0.7% annual rate compared with the 0.2% growth pace it estimated last month. A larger trade deficit and a smaller accumulation of inventories by businesses than previously estimated were the main contributors to the downward revision. Consumer spending, which makes up about 70% of economic activity, slowed to growth of just 1.8% in the first quarter, slightly below the 1.9% gain initially estimated. With growth estimates so far for the second quarter around 2%, the economy appears to set for its worst first-half performance since 2011. Though falling GDP can be a sign of a recession, economists see little reason for concern with the first quarter drop. They are forecasting solid GDP growth the rest of the year, with steady job gains propelling the economy.
An interest rate hike this year would miss the chance to support employment and inflation in the still fragile US economy, according to the President of the Federal Reserve Bank of Minneapolis Narayan Kocherlakota, known for his dovish stance. Kocherlakota insisted that the Fed must be extremely patient with its monetary policy decision to ensure the labour market can regain the strength it enjoyed before the Great Recession.
© Dukascopy Bank SA