GDP Surprises, Fed Hawks Squawk Louder

During much of this week, the 10 year treasury was nearing the 2014 low of 2.44% which loomed as a key technical “bottom”….. Today’s 2nd quarter GDP report indicating a 4.0% annualized growth rate surpassed expectations. The Fed minutes today contained the expected language re tapering, ie bond purchases cut to $25 billion ($10 billion in MBS and $15 billion in treasuries). The Fed statement deleted the reference to unemployment being elevated (which may indicate a raising of short term rates is sooner than we thought), but the statement also said that there is “significant underutilization” of labor resources. This shows that the Fed is looking beyond the regular unemployment rate and considering other factors such as long term unemployed leaving the job force, part time workers unable to find full time jobs, etc. Philadelphia Fed President Plosser dissented from today’s statement (the last few have been unanimous). That combined with the mention of inflation being “near target” may indicate growing sentiment among certain Fed members to raise sooner. ….stay tuned… David R. Pascale, Jr.