Just after the GDP number was released, we joked that the only opinion on the sub-standard Q2 US economic growth that matters is that of Fed uberchairman Jon Hilsenrath:
Only Hilsenrath's take on the GDP matters
— zerohedge (@zerohedge) July 27, 2012 [5]
Turns out we were not joking: the Fed mouthpiece has just released his take on the GDP. His bottom line: Inflation Data Won’t Constrain Fed. In other words, the Fed ignores the modest beat to expectations, and has given the green light after all.
From Jon:
GDP Highlights: Inflation Data Won’t Constrain Fed
A few quick thoughts on GDP report out this morning:
- Key price indexes are uniformly running below the Federal Reserve’s 2% objective. The personal consumption expenditures price index was up 1.6% from a year ago, thanks in part to falling gasoline prices. This is the price index that the Fed watches most closely, more so than the consumer price index produced by the Labor Department, which is running a touch higher. Excluding food and energy, the PCE price index was up 1.8% from a year ago. The Fed watches this ex-food-and-energy index to get a read on underlying inflation trends. For the quarter at an annual rate, the PCE price index ran at 0.7% and excluding food and energy it ran at 1.8%. An alternate measure, the “market-based” price index, is also running below 2%. This is ammunition for Fed officials who want to act right away to spur growth. Not only is growth subpar, and the job market stuck in the mud, inflation is also running below the Fed’s long-run goals.
- National defense spending contracted three quarters in a row. The winding down of two wars, it seems, is having a short-term negative impact on growth, though it is certainly in everyone’s interest in the long run that the nation not be at war. Of course budget cuts are also part of this story.
- Business investment ran at an 8.5% annual rate in Q2. Not bad, despite all of the uncertainty business leaders express about the world. That includes 7.2% in the all important equipment and software category.
- With very little fanfare, housing investment has been growing for a full year and went at a double digit pace in the first half of 2012.
- Final sales of domestic product — a measure of how the economy is doing when you take out inventory swings – up at a 1.2% rate in Q2 and averaging a 1.7% rate since 2011. That’s really substandard for a recovery.
And there you have it: the central planners' parrot has squawked.