Fed eyes U.S. rate hike, but second-guesses economic gauges

Wed Apr 13, 2016 6:33am EDT
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By Ann Saphir and Jonathan Spicer

SAN FRANCISCO/RUSTON, La. (Reuters) - Federal Reserve Chair Janet Yellen has declared that the U.S. central bank's interest-rate decisions will depend on how the economy performs.

But Fed officials and their staff are already dismissing large swathes of the most recent economic data because they view it as unreliable, a twist that could make it harder for investors, businesses and households to plan for the central bank's next interest-rate move.

"I would take the first-quarter real GDP estimates with a big grain of salt," the San Francisco Fed's chief of research, Glenn Rudebusch, told Reuters in an interview on Friday. "First-quarter will be weak, but we think that it is not representative of the underlying strength of the economy."

The government will not publish its first estimate of first-quarter economic growth until April 28, the day after the Fed's next policy meeting, but unofficial guesses are coming in low. The Atlanta Fed, for instance, currently estimates first-quarter GDP growth at a barely perceptible 0.1 percent.

The economy grew 1.4 percent in the fourth quarter, and analysts estimate it needs to expand at 2 percent or faster to keep pushing unemployment down.

Rudebusch says recurrent statistical problems with that estimate, related to seasonal swings in everything from weather to spending patterns, means that real growth last quarter was probably closer to 1.6 percent.

"It is big," Rudebusch said of the difference between what the data says and what he believes.

Rudesbusch's views are important because he advises San Francisco Fed chief John Williams ahead of, and sometimes during, his regular trips to Washington to debate monetary policy.   Continued...

U.S. Federal Reserve Chair Janet Yellen holds a press conference following the two-day Federal Open Market Committee (FOMC) policy meeting in Washington March 16, 2016.REUTERS/Kevin Lamarque