Fed Scrambles To Revise 2023 Projections As US Economy Surges Beyond Expectations

The U.S. economy has emerged as the year’s unexpected star performer, with Federal Reserve officials poised to double their 2023 growth projections due to a series of positive indicators.

From consumer spending to residential investment, data has consistently outperformed expectations, prompting economists to revise their forecasts.

The unofficial estimate from the Atlanta Fed even suggests a remarkable 5.6% annualized expansion in Q3. This dramatic turnaround from just three months ago, when recession fears loomed, could force the Fed to rethink its 2024 interest-rate cut projections, according to Bloomberg.

Chart: Atlanta Fed GDP Nowcast Is Expected To Hit 5.6% in Q3 2023

Strongest Economic Quarter Since 2021

Any GDP growth above 3.2% in the coming quarter would mark the strongest performance since 2021, when the U.S. rebounded from the pandemic’s initial shock. This contrasts starkly with China’s outlook, which has suffered downgrades amid a mounting property crisis.

The Fed’s mid-June projections anticipated a mere 1% growth in 2023, a significant upgrade over the earlier March forecast that implied a recession, according to Bloomberg.

The new projections, set for release after the Sept. 19-20 policy meeting, are expected to hover around 1.8% to 2%, with lower unemployment rate predictions.

This growth surge might lead the Fed to scale back its anticipated rate cuts for next year to 75 basis points, down from the previously projected full percentage point.

Despite this optimism, the central bank has indicated that it will likely maintain its benchmark interest rate in September. The recent rate hike to 5.25% to 5.5%, the highest in 22 years, followed by reassuring inflation data, allows policymakers to proceed cautiously.

Money markets are currently assigning a 93% chance of rates to stay unchanged in September, according to CME Group’s Fedwatch tool.

The yield on the rate-sensitive 2-year Treasury note traded at 4.95% on Wednesday. An exchange-traded fund tracking short-term Treasuries – the iShares 1-3 Year Treasury Bond ETF SHY – is 0.4% lower in September.

Read now: New York Fed’s Inflation Gauge Holds Steady At Over 2-Year Low: Is Threat In Rearview Mirror?

Fed’s Summary Of Economic Projections: June 2023

This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.

Photo: Shutterstock