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 But Fed officials and their staff are already dismissing large
swathes of the most recent economic data because they view it as
unreliable, a twist that could make it harder for investors,
businesses and households to plan for the central bank's next
interest-rate move.
"I would take the first-quarter real GDP estimates with a big grain
of salt," the San Francisco Fed's chief of research, Glenn Rudebusch,
told Reuters in an interview on Friday. "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,
for instance, currently estimates first-quarter GDP growth 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 the only data skeptic at the Fed. St. Louis Fed
President James Bullard last week also suggested he will 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 U.S. central bank's 17 rate-setters next meet 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.
So-called residual seasonality is but one of a number of challenges
in interpreting U.S. data. Economic data is constantly revised, and
final reads are often significantly higher or lower than initial
measurements.
"It’s true that this particular problem, as with any statistical
problem, makes the Fed’s job more complicated," says Lewis
Alexander, Nomura's chief U.S. economist. But, he added, "I think
that's overdone... People are using this as an excuse to ignore weak
data."
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PROBLEMS WITH INFLATION DATA TOO
Just as first-quarter GDP growth data tends to be understated,
inflation data in the first half of the year tends to be stronger
than in the second half. Analysts disagree on why, but some peg it
to the methods statisticians use to smooth price changes for
seasonal swings.
Whatever the reason, it worries Chicago Fed President Charles Evans,
who counsels waiting before responding to the recent uptick in
inflation with further rate hikes.
"It’s not completely clear that those are going to be sustainable
increases... I think that’s why we have a little latitude, more than
a little latitude, to wait at the moment and gather a few more
months of inflation to get a little more confident about that," he
told reporters in late March.
U.S. inflation has been running below the Fed's 2-percent target for
years and Fed officials say they want to be confident it is moving
back up before raising rates.
"If we were to raise rates much further and then saw inflation not
keep moving up, I’d be nervous," said Evans.
While it is unclear whether the data is strong enough for the Fed to
follow through on its forecast for two rate hikes this year, or
whether traders betting on just one or even none have it right, most
agree there will be no rate hike in April.
The Fed prominently highlighted risks from the global economy at its
last meeting as a reason for caution.
"It’s worth in this environment being patient, and basically being
willing to be cautious and let events unfold," Dallas Fed President
Robert Kaplan said on Monday. "And we’ll know soon enough."
(Reporting by Ann Saphir; Editing by David Chance, Chizu Nomiyama
and Dan Grebler)
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