The Q1 US GDP report somewhat puts a ‘cat among the pigeons’ in terms of the US economic outlook.
With cooler than expected growth, below 2% annualised QoQ for the first time in seven quarters, and hotter than expected inflation, being something of a potent mix for the FOMC to have to contend with.
The data, however, is unlikely to materially shift the policy outlook, with a data-dependent ‘wait and see’ approach still set to be taken, as policymakers continue to seek confidence that inflation is indeed returning towards the 2% target.
Nevertheless, while markets have reacted in a knee-jerk hawkish manner (equity & bond downside, USD upside), context is as always key, with this data not only pointing to continued US economic outperformance vs. DM peers, but the data also likely to be revised significantly in coming months.
In any case, the near-term implication is to point the balance of risks in favour of a hotter than expected March core PCE print tomorrow, likely in the region of 0.4%-0.5% MoM.
