The Fed’s big problem is that the economy isn’t doing badly enough for rate cuts — no matter how much the president begs.
Last Friday the Bureau of Economic Analysis announced that the economy grew by a 2.1 percent annual rate in the second quarter of 2019. That was better than the 1.8 percent growth that Wall Street economists were expecting.
And while 2.1 percent growth is nothing to pound your chest about, it was much better than what the economists at the New York and Atlanta Federal Reserve banks were expecting.
So, when the Fed’s policy-making committee meets on Tuesday and Wednesday, they are going to have to explain away the reasonable growth in the second quarter on top of strong annualized growth of 3.1 percent in the first three months of this year.
Put the 3.1 percent growth together with the 2.1 percent growth and you have a very reasonable 2.6 percent growth so far this year.
Worse for those who want rates cut is the fact that personal consumption is what fueled the second-quarter growth. People spent 4.3 percent more in the quarter, and only a 4 percent increase was expected.
If the Fed is really as “data dependent” as it claims, the people who are pushing for rate cuts would be getting nervous. How are they gonna explain rate cuts when the economy seems to be doing just fine, or — at the very least — is doing about the same as it was at the end of last year when the Fed was raising rates?
If the Fed wants to reestablish its credentials it won’t cut rates. But then it’ll have to deal with a very angry president.
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