Suitably Flip

GDP Growth Slows, Market Overjoyed

The advance reading on 2nd quarter GDP growth came in at 2.5% this morning, lower than the 3% predicted.  Economists knew the growth rate had slowed from last quarter's sizzling 5.6%, but this first look at the data suggests it cooled off more than they thought.

The market is delighted.

While interest rate futures had previously been implying a 50/50 chance that the Federal Reserve would call for an 18th consecutive rate hike at their August meeting, in the wake of this report, the odds seem to have dwindled.  Traders seem increasingly confident that this more dramatic slowing could convince the Fed that its belt-tightening work is done, that inflation is well-contained and that further hikes would unduly constrain further growth.

The data actually showed signs of rising inflation in the 2nd quarter, but the GDP growth slowdown remained a compelling argument that the Fed would pause in August.

Wall Street's optimism overshadowed data showing rising inflation. The GDP report said core consumer prices -- excluding energy and food -- surged 2.9 percent last quarter, while the department's employment cost index rose a stronger-than-forecast 0.9 percent.
...
In the first hour of trading, the Dow Jones industrial average gained 76.68, or 0.69 percent, to 11,177.11.

Broader stock indicators also advanced. The Standard & Poor's 500 index was up 7.37, or 0.58 percent, at 1,270.57, and the Nasdaq composite index climbed 15.18, or 0.74 percent, to 2,069.65.

The economic data lifted bonds, with the yield on the 10-year Treasury note sliding to 5.01 percent from 5.04 percent late Thursday.

Whaddaya say, Mr. Bernanke?  Make like the Europeans and take August off.

Comments

GDP Growth Slows, Market Overjoyed

The advance reading on 2nd quarter GDP growth came in at 2.5% this morning, lower than the 3% predicted.  Economists knew the growth rate had slowed from last quarter's sizzling 5.6%, but this first look at the data suggests it cooled off more than they thought.

The market is delighted.

While interest rate futures had previously been implying a 50/50 chance that the Federal Reserve would call for an 18th consecutive rate hike at their August meeting, in the wake of this report, the odds seem to have dwindled.  Traders seem increasingly confident that this more dramatic slowing could convince the Fed that its belt-tightening work is done, that inflation is well-contained and that further hikes would unduly constrain further growth.

The data actually showed signs of rising inflation in the 2nd quarter, but the GDP growth slowdown remained a compelling argument that the Fed would pause in August.

Wall Street's optimism overshadowed data showing rising inflation. The GDP report said core consumer prices -- excluding energy and food -- surged 2.9 percent last quarter, while the department's employment cost index rose a stronger-than-forecast 0.9 percent.
...
In the first hour of trading, the Dow Jones industrial average gained 76.68, or 0.69 percent, to 11,177.11.

Broader stock indicators also advanced. The Standard & Poor's 500 index was up 7.37, or 0.58 percent, at 1,270.57, and the Nasdaq composite index climbed 15.18, or 0.74 percent, to 2,069.65.

The economic data lifted bonds, with the yield on the 10-year Treasury note sliding to 5.01 percent from 5.04 percent late Thursday.

Whaddaya say, Mr. Bernanke?  Make like the Europeans and take August off.