August 12, 2014

US Economic Update – August 2014

GDP bounced back strongly in the June quarter, growing at an annualised 4.0% rate. Early indicators for the September quarter are positive. Tapering of asset purchases under QE is continuing and we expect the end of the program to be announced after the Fed’s October meeting.

  • GDP bounced back strongly in the June quarter, growing at an annualised 4.0% rate. Early indicators for the September quarter are positive.
  • Tapering of asset purchases under QE is continuing and we expect the end of the program to be announced after the Fed’s October meeting.
  • The first hike in the fed funds rate is not expected for a while yet – June quarter 2015. Subsequent rate hikes will be gradual by historical standards, although the risk is biased towards a faster pace.
  • We expect the fed funds rate to peak at 3.75% – lower than in the last tightening phase. Late in the tightening cycle the Fed will also move to reduce the size of its QE asset holdings.

After declining at the start of the year, GDP bounced back strongly in the June quarter, growing at an annualised 4.0% rate. While this included a sizeable contribution from stocks, the improvement was broad based with consumption and business and residential investment all strengthening, as did government expenditure, while net exports were less of a drag. Revisions to past GDP estimates also suggest there was more momentum in the economy over the last year than previously thought.

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