And so the GDP revisions start coming fast and furious. Following repeated warnings from Goldman (which also modestly cut its GDP forecast), implying that the only firm that matters is about to cut GDP across the board, Fed "Expert Network" Macroeconomic Advisers, headed by the inimitable Larry Meyer, has decided to provide value to its client(s) and slash Q1 GDP from 4% to 2.3%. This means that Joe LaVorgna is furiously coming up with scenarios that blame everything from snow to gamma rays to the dog eating his excel spreadsheets for why he is about to trim his permabullish outlook.
The NYT's Leonhardt reports (this may well be behind a paywall).
Given this recent history, you might think Fed officials would now be doing everything possible to ensure a solid recovery. But they’re not. Once again, many of them are worried that the Fed is doing too much. And once again, the odds are rising that it’s doing too little.
Higher oil prices, government layoffs, Japan’s devastation and Europe’s debt woes are all working against the recovery. Already, a prominent research firm founded by a former Fed governor, Macroeconomic Advisers, has downgraded its estimate of economic growth in the current quarter to a paltry 2.3 percent, from 4 percent. The Fed’s own forecasts, notes that former governor, Laurence Meyer, “have been incredibly optimistic.”
Why is this happening? Above all, blame our unbalanced approach to monetary policy.
One group of Fed officials and watchers worries constantly about the prospect of rising inflation, no matter what the economy is doing. Some of them are haunted by the inflation of the 1970s and worry it may return at any time. Others spend much of their time with bank executives or big investors, who generally have more to lose from high inflation than from high unemployment.
Look for the market to surge as collapsing GDP expectations are, you guessed it, used as an excuse to BTFD.