Wall Street More Pessimistic on US Economy

Federal Reserve officials will probably cut their forecasts for economic growth when they gather again next month, though not enough to deter their intent to raise interest rates later this year.

The median respondent to a survey of 79 economists conducted by Bloomberg from May 8 to May 13 said U.S. gross domestic product would grow 2.3 percent in the final quarter of 2015 from a year earlier, down from the 2.7 percent median estimate in April.

That compares with a 2.5 percent midpoint of the central tendency of estimates submitted by Fed officials at their March meeting, the last time they issued updated forecasts. The central tendency denotes the range of estimates excluding the three highest and three lowest of the 17 policy makers’ projections.

Economic data released since the Federal Open Market Committee’s March forecasts have revealed unexpected weakness in the first quarter. Economists have attributed this to mostly transitory factors such as the rise of the dollar, a drop in oil prices, harsh winter weather and a slowdown at West Coast ports due to labor disputes.

Forecasting firm Macroeconomic Advisers now estimates the U.S. economy contracted at a 0.9 percent seasonally adjusted annualized rate in the first three months of the year.

The central question now: Will the slowdown prove temporary or will it persist? The arrival of the first round of April data in recent days has prompted analysts to begin marking down estimates for the current quarter as well.

And economists don’t necessarily expect growth over the next few quarters to make up for the surprise drop in the first quarter, unlike in 2014, when a surprise contraction in the first quarter was made up over the rest of the year.

Bloomberg

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