The U.S. economy expanded at a faster clip than previously estimated in the second quarter, the Commerce Department reported Tuesday. Gross national product climbed 1.7 percent in the April to June period, up from the original 1.5 percent projection. The revised GDP report has a mixed message for policymakers: the slightly higher figure means the economy is growing but the 0.2 percent gain still falls short of the 2-2.5 percent pace required for a steady economic recovery. The economy grew at a 2 percent annual rate in the first three months of the year compared to 4 percent in the fourth quarter of 2011.
David Kotok, chairman and CIO of Cumberland Advisors, says the GDP report suggests the Fed would not announce additional stimulus, or quantitative easing, at its Jackson Hole, Wyoming, annual meeting this weekend.
"The Fed doesn't do anything with this," Kotok says in an interview with The Daily Ticker. "The Fed has no reason to change policy." As long as growth moves in an upward trend, "no QE3 from Jackson Hole. They don't even have a reason to have a meeting."
Traders and investors have pushed U.S. markets to four-year highs on expectations that the Fed would provide new stimulus before its next policy making meeting on Sept. 12 and 13. The Fed has already vowed to keep interest rates near zero until late 2014 and expanded its balance sheet by $2.35 trillion in bond purchases to spur lending and borrowing.
Positive signs in the housing market and consumer spending have not completely dampened the possibility of another Fed rescue; the national unemployment rate has not broken the 8 percent mark and economic growth has been tepid and slow even as GDP has expanded for 12 consecutive quarters.
Kotok says he expects a muted market reaction to Tuesday's GDP report. The looming fiscal cliff — the $1.2 trillion in automatic spending cuts and $3 trillion in tax hikes that go in to effect Jan. 1 — has an even greater potential to rock markets, he notes.
"Nobody knows what's going to happen with the fiscal cliff," he adds. Markets are dealing with "a huge uncertainty premium."
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