The U.S. economy expanded at a 6.4% annual rate in the first quarter, the same as in an initial estimate. In the advance estimate, the increase in real GDP was also 6.4 %. Real GDP increased by 4.3 percent in the fourth quarter of 2020.
The increase in real GDP in the first quarter reflected increases in personal consumption expenditures (PCE), nonresidential fixed investment, federal government spending, residential fixed investment, and state and local government spending that were partly offset by decreases in private inventory investment and exports as reported by Bureau of Economic Analysis.
Consumer spending was revised up to an 11% gain in the first three months of the year. Economists now predict GDP to grow at an annualized rate of 8.2% in the second quarter.
Separate reports showed that initial unemployment claims fell 38,000 to a seasonally adjusted 406,000 for the week ended May 22. That marked the fourth straight weekly decline, and the lowest since mid-March 2020.
Federal Reserve minutes for April’s meetings hinted that some policymakers are getting ready to start tapering discussions soon. Fed members are expecting that discussing a plan for adjusting the pace of asset purchases might be appropriate in upcoming meetings if the economy continues to make rapid progress toward the committee’s goals. It is speculated that the June meeting may signal the next tapering move.
RBNZ Signals Future Rate Hikes
The Reserve Bank of New Zealand kept monetary policy unchanged during its May meeting, while delivering a hawkish expected tone. The RBNZ left interest rates at 0.25% and both its NZ$ 100bn asset purchase programme and the funding for lending programme unchanged on Wednesday. However, markets were surprised by forecasting a rate hike in 2022. The Bank’s economic projections indicate that outlook for the economy in now brighter, and the next move could be tapering the QE programme.
Moreover, the bank dropped its April Monetary Policy Review that “The Committee agreed that it was prepared to lower the OCR if required”. The first-rate hike seems to be penciled in for mid-2022. The main factor behind the change in RBNZ’s guidance is the outperforming labour market. The bank lowered its unemployment forecasts to 4.4% in 2023 towards a low of 4.3% by Q2 2024. RBNZ expects the tighter labour market to result in rising wage inflation. Another hawkish signal from the RBNZ was also sent through the inflation projections, as the Bank is now expecting to achieve a steady inflation rate of around 2.2% in early 2023. RBNZ targeted inflation is between 1% and 3%.
In its policy statement, the Bank highlighted concerns about the tourism sector while the housing sector remains a key concern, as the bank is concerned about rising house prices and wants to assist in curbing surging house prices in New Zealand.
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