While the latest data confirmed our reading at the start of the year that economic weakness was temporary, and despite accelerating growth in the second quarter, the more complete and detailed information released last month show that the recovery since 2012 has been slower than previously reported. Today’s GDP value is almost one percentage point lower than earlier estimates led us to believe. This means the current business-cycle expansion, whether measured by output or employment growth, has been the slowest in U.S. postwar history.
Strong CPI growth in June underlined AIER’s analysis last month pointing to rising inflationary pressures. The latest scorecard shows that 17 out of 23 indicators support rising inflationary pressure, compared with 15 in our previous report, indicating a higher likelihood of future price increases. Anticipated policy firming on interest rates may moderate rising inflationary pressures.
Fed policy makers did not provide any new signals on the timing of an increase in short-term interest rates following their July meeting. and despite the weaknesses highlighted in the revised report, the Fed continues to indicate that its policy remains on track for a liftoff this year.
With still-modest growth and inflation, bond yields remain very low. However, a slowly improving U.S. economy and declining unemployment may support the Fed’s first rate hike in almost a decade. That, in turn, may pressure bond yields higher, but the question of how high yields may rise remains open.
Weak global growth and a strong dollar have sent most commodity prices tumbling to multi-year lows. Add to that a price war in crude oil and the decline in demand for gold as a haven and the environment for commodities remains unfavorable.