A Federal Reserve projection on economic growth just weakened substantially, and expectations for a rate cut over the next eight months got a lot stronger.
The Atlanta Fed’s closely watched GDPNow tracker is pointing to a 1.1% gain for the economy in the second quarter, according to a revision posted Wednesday. That comes on the back of a strong first three months that saw a 3.2% gain and is substantially lower than CNBC’s Rapid Update survey, which puts the GDP tracking estimate at 2%.
Disappointing retail sales in April fueled the latest leg down in the Atlanta Fed outlook. The Commerce Department reported Wednesday that sales declined 0.2% for the month against expectations of a 0.2% gain. Along with the retail letdown, industrial production fell 0.5% against Wall Street estimates of a 0.1% gain.
Taken together, the weaker-than-expected numbers took a half percentage point off the Fed’s previous second-quarter estimate.
The drop in the GDP forecast coincided with market expectations that the Fed will be lowering interest rates in the months ahead.