Pete Wargent blogspot

CEO AllenWargent Property Buyers, & WargentAdvisory (institutional). 6 x finance author.

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Saturday, 28 March 2015

US rate hikes pushed out?

GDP decelerates in Q4

The US Bureau of Economic Analysis released its third Q4 GDP estimates overnight.

After the rip-snorting result in Q3 where real GDP was estimated to be rising at some 5.0 percent, the third estimate for Q4 showed real GDP to be tracking at a more sedate 2.2 percent.

The increase in Q4 real GDP reflected positive contributions from consumption ("PCE"), non-residential fixed investment, exports, state-&-local government spending, and residential fixed investment.

However those gains were partly offset by negative contributions from federal government spending and private inventory investment. Imports - which are a subtraction in GDP calcs - also increased.

When charted in billions of chained 2009 dollars, the steady recovery in the US economy is apparent.

In recent months the headline rate of US unemployment has tumbled to just 5.5 percent, we have recently seen the strongest US jobs gains in 17 years, and US job openings ("JOLTS") are at the strongest level since 2001.

Refer to the links embedded above for analysis of each data release.

When will the Fed hike?

The key question, then, is not if but when the US Federal Reserve will begin to hike interest rates. The Fed's Janet Yellen noted overnight that the Fed will likely begin to hike rates this year, but gradually.

Reuters provided a neat summary of Yellen's luncheon thoughts here. Interestingly, Reuters analysis showed that the speech was evidently spiced with a dovish tone.

If this proves to be correct and US rate hikes don't materialise until later in 2015, this may serve to add further pressure on the Reserve Bank of Australia (RBA) to cut rates again.

Domestically our cash rate future markets are fully pricing two more interest rate cuts before the end of this calendar year.

Murmurings in the media suggest that rates could be on hold in April as the RBA awaits more data - specifically on inflation and the housing market - potentially teeing up a rate cut for the May meeting.