Federal Reserve Chair Janet Yellen said the US central bank’s interest rate decisions will depend on how the economy performs.
But Fed officials and their staff are already dismissing the most recent economic data because they view it as unreliable, which could make it harder for investors, businesses and households to plan for the next interest rate move, Reuters said.
“I would take the first-quarter real GDP estimates with a big grain of salt,” Glenn Rudebusch, the San Francisco Fed’s chief of research, told the news agency in an interview.
“First-quarter will be weak, but we think that it is not representative of the underlying strength of the economy.”
The government will not publish its first estimate of first-quarter economic growth until April 28, the day after the Fed’s next policy meeting, but unofficial guesses are coming in low.
The Atlanta Fed places it at a barely perceptible 0.1 percent.
The economy grew 1.4 percent in the fourth quarter, and analysts estimate it needs to expand at 2 percent or faster to keep pushing unemployment down.
Rudebusch says recurrent statistical problems with that estimate, related to seasonal swings in everything from weather to spending patterns, means that real growth last quarter was probably closer to 1.6 percent.
“It is big,” Rudebusch said of the difference between what the data says and what he believes.
Rudesbusch’s views are important because he advises San Francisco Fed chief John Williams ahead of, and sometimes during, his regular trips to Washington to debate monetary policy.
He is far from being the only one at the Fed who is skeptic about the data.
St. Louis Fed president James Bullard last week also suggested he would discount first-quarter GDP readings, saying strong job growth numbers, which have kept unemployment at a healthy 5 percent, give a better picture of the economy.
The US central bank’s 17 rate-setters next meet on April 26-27, and then on June 14-15.
The disconnect between what the GDP data says and how Fed staffers and policymakers read it is not a new problem for the Fed, which has endured several years of weakness.
But now that the Fed is actively looking at when to raise rates again after lifting them in December for the first time in nearly a decade, the problem is more acute, Reuters said.
Economic data is constantly revised, and final reads are often significantly higher or lower than initial measurements.
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