GDPNow Fed of Atlanta only off by 2.4%

Had predicted a 2.7% decline in Q1 GDP.

So most everyone has probably seen that the GDP contracted by 0.3% in Q1. All the rage to blame the Donald for this. But if you read behind the headline, the massive amount of last minute imports (to beat the tariffs) was the largest contributor to the negative number. Had it not been for a huge trade imbalance (due to this one time surge) most analysts suggested that the GDP would have been closer to 2-2.5 percent range and in line with the previous quarters.

But what that means is that businesses are now sitting on inventory and our trade balance will likely flip over the next few quarters as people no longer have to import as much. This will obviously help in the next couple of quarters for the same reason it hurt in Q1. Otherwise the numbers were fairly good. Spending was up (in spite of all of the economic doomsaying) and other underlying factors suggested a reasonable amount of growth sans the trade imbalance. GDPNow is suggesting 2.4% growth in Q2 and most others are suggesting around 2%, which is about what is expected for the full 2025 fiscal year.

This is why the Fed is not likely to lower interest rates, something they seem loath to do when Republicans are in office. If the Feds were truly concerned with a possible recession, we would definitely see a string of rate decreases as there is margin right now to do so. Rates remained near zero for most of the Obama administration, so there is nothing that demands they stay high. But they probably will stay high as the Powell continues to suggest that tariffs will cause "inflation" and they cannot lower rates when their are inflation concerns. Of course inflation is not just a rise in price, but a devaluation of the dollar in real spending. Tariffs can create the former, but it has nothing to do with the latter. Something Powell should know if he actually passed Macro Economics 101. But I suspect he is more of a politician than economist at heart.