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Why is the GDP Report So Important?

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Why is the GDP Report So Important?

July 27 2015, 07.00am GMT

The Federal Reserve will be meeting on Tuesday and Wednesday this week with a brief press statement expected after the meeting.

While the press statement is expected to comment on the meeting, analysts are pretty sure there will be no reference to the timing of an interest rate hike.

Josh Shapiro, chief economist at MFR Inc. commented that he didn't see the Fed giving any clues about a September rates hike. He added, “They don't want to paint themselves into a corner.”

During her twice-yearly testimony before congress earlier this month, Fed Chairwoman Janet Yellen had said she expected the economy to strengthen which would keep the central bank on course for an interest rate hike at some point this year. She added that not only could the economy tolerate a rates hike, but in fact it needed such a hike. Meanwhile, the recently released jobless claims numbers seem to bear out her sentiments.

In addition, Gus Faucher, a senior economist at PNC Financial Services, said at the time that Yellen’s comments were consistent with a possible rates hike in either September or December this year.

Meanwhile, the other big news for the week will be the release of the much anticipated second quarter GDP numbers by the Commerce Department on Thursday.

The large unknown in this quarterly report is the fact that the data will include annual revisions going back to 2012. This includes a revision on the shock negative reading of -0.2% in the Q 1 report, with some economists expecting the negative number to change to a positive one.

Economists surveyed regarding the matter have forecast that the second quarter GDP figures could be expected to reflect growth at an annual rate of 2.5%, including the smoothing out effect of the revision of previous numbers.

Josh Shapiro also said that while the Fed would have an idea of what the second quarter GDP data would look like when they meet, it would not have that much impact on their deliberations. The added uncertainty on the GDP numbers as a result of the revisions means the Federal Reserve will likely focus more on known quantities such as the unemployment report and inflation data.

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