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Does GDP Revision Ease Tapering Concerns?

Neena Mishra

US first quarter GDP growth was revised sharply downwards today to 1.8% from 2.4% estimated earlier.  The revision largely resulted from weaker-than-expected consumer spending and lower business investment. It appears that spending cuts and tax hike took a toll on consumption and investment.

Even though recent economic numbers--particularly in areas of housing and consumer confidence--have been rather upbeat, today’s revision indicates that the Fed’s economic projections were rather optimistic.  

The FOMC estimated that the economy would grow by 2.3%--2.6% this year and by 3.0%--3.5% next year.  On the other hand, the IMF expects the economy to grow by 1.9% this year and by 2.7% in 2014.

Though the Fed chairman suggested that the Fed could begin tapering its QE program later this year, he had emphasized that tapering would depend on the progress on the unemployment and inflation fronts.

A stronger economy is no doubt better for stocks but in the shorter-term, the market appears to be focused on the QE.  And as a result, bond yields dropped and stocks moved higher today.

Do you think the revision reduces the chances that tapering will start anytime soon?

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