GDP Misses Badly as Commerce Department Points to Government Shutdown
Investor confidence in the strength of the economy was shaken this morning with the release of fourth quarter GDP data, which showed an increase of 1.4%, well below the 2.5% estimate. The Commerce Department blamed the government shutdown for the weak number, saying it probably took about 1% off the final figure.
PCE Holds Above Fed Target, Trimming June Rate Cut Odds
More bad news for investors came in the form of the personal consumption expenditures (PCE) price index report. It came in as expected at 3%, but this number remained above the 2% Fed target, dampening the chances of a June rate cut. The latest CME FedWatch Tool data read 46.8% after the close, down from 50.2% on Thursday.
No Panic Yet, but the Stagflation Warning Signs Are Building
So far the reaction in the stock market is normal, with sellers being driven by slowing growth and higher interest rates for longer. There is no panic in the market yet, but a scenario of slow growth and climbing inflation will be a bad sign for the economy. It’s known as stagflation.