Atlanta Fed forecast for GDP growth sliding, rate cut chances surging

A pedestrian walks past the Federal Reserve building on Constitution Avenue in Washington, March 19, 2019.

Leah Millis | Reuters

A Federal Reserve projection on economic growth just weakened substantially, along with also expectations for a rate cut over the next eight months got a lot stronger.

The Atlanta Fed’s closely watched GDPNow tracker will be pointing to a 1.1% gain for the economy inside the second quarter, according to a revision posted Wednesday. which comes on the back of a strong first three months which saw a 3.2% gain along with also will be substantially lower than CNBC’s Rapid Update survey, which puts the GDP tracking estimate at 2%.

Disappointing retail sales in April fueled the latest leg down inside the Atlanta Fed outlook. The Commerce Department reported Wednesday which sales declined 0.2% for the month against expectations of a 0.2% gain. Along with the retail letdown, industrial production fell 0.5% against Wall Street estimates of a 0.1% gain.

Taken together, the weaker-than-expected numbers took a half percentage point off the Fed’s previous second-quarter estimate.

The drop inside the GDP forecast coincided with market expectations which the Fed will be lowering interest rates inside the months ahead.

Futures trading right now indicates an 80% chance of a rate cut by January 2020, according to the CME’s FedWatch tool. However, the decrease could come even sooner than which — the tool assigns a 51% probability of a move lower in September along with also a nearly 42% chance of two cuts by January.

Fed officials have been unified in saying they don’t foresee a cut or an increase before the end of the year.

In a speech Wednesday, Richmond Fed President Thomas Barkin said, “This particular makes sense to remain patient” when This particular comes to policy moves.

“There’s not a strong case to push rates higher when inflation will be under control; there’s not a strong case to move lower when growth remains healthy,” he said.

The Fed’s benchmark short-term interest rate will be currently targeted in a range between 2.25% to 2.5%.