Atlanta Fed Slashes Q1 GDP To Only 1.3% With Yellen Set To Hike

One week ago, we pointed out a curious bifurcation: the Fed was telegraphing an imminent rate hike - one which following Yellen's Friday conference is now virtually assured - even though it appears the FOMC would be hiking in a quarter in which GDP comes in in the mid 1%-range, or lower. The reason: while "soft data" - which is important to animal spirits if not actual economic output - continues to surge, the "hard data", that which actually matters to the economy, is still disappointing.


Fast forward one week when according to the Atlanta Fed, Janet Yellen is about to dig an even deeper hole because should the Fed hike next Wednesday it will do so in a quarter in which GDP was just revised from 1.8% as of last week to just 1.3%. This forecast was more than double, or 2.7%, as recently as one month ago.

From the source:

The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the first quarter of 2017 is 1.3 percent on March 7, down from 1.8 percent on March 1. The forecasts for first-quarter real personal consumption expenditures growth and real nonresidential equipment investment growth fell from 2.1 percent and 9.1 percent, respectively, to 1.8 percent and 7.3 percent, respectively, after Thursday's motor vehicles sales release from the U.S. Bureau of Economic Analysis. The forecast of the contribution of inventory investment to first-quarter growth fell from -0.50 percentage points to -0.72 percentage points after yesterday's manufacturing report from the U.S. Census Bureau.



What is curious is the dramatic divergence between the Atlanta Fed and the Dow Jones, one tracking the real economy, the other perhaps tracking euphoria and "soft" data...

... but even more curious is the correlation between the Atlanta Fed's GDPNow forecast and the inverted April Fed Fund Futures: this means that the worse the economy gets, the higher the Fed odds of a rate hike.

Does any of this make sense? Of course not, but then again in a world in which even the OECD no longer can explain the divergence between markets and the economy, and openly slams central banks for creating asset bubbles, nothing is supposed to make sense.