Data Review: USA GDP growth and policy actions

Hi Everyone — Today we look at GDP numbers for USA and I’d like to share some of my views from the recent policy actions from the FED.
I downloaded GDP data from St Louis Federal Reserve and ran a simple Hodrick-Prescott Filter using some Python tools. What is observed from this straight up analysis and may in turn reflect scenarios is the change in the cyclical component. As we all know, growth around the world is slowing down and we’re headed into another stage in the Business cycle — everyone’s afraid of the ‘R’ word.

The FED keeps a close watch on the output gap, core inflation levels and unemployment to help them navigate their dual mandate; which is low unemployment and sustainable price levels. Having ran the simple HP-filter, what is observed here is the change in 2nd order of difference i.e. the cyclical component which may reflect a change in the rate of growth for USA. Markets anticipated the Central Bank to hike rates, but the latter has since turned dovish given the mediocre business environments. To mitigate / navigate sluggish growth, the Central bank has responded with a halt in rate hikes, but decided to slow down certain QE unwinding policies.

What is left to think about would be:
i) What would happen when the rolling over of the debt securities stop in September 2019?
ii) In a Realvision interview, a hedge fund manager repeatedly mentioned a set of cocktails and particular responses by the markets. Going into 2018 he had an unsolved puzzle of how the central bank would manage it. He had a response to it, my guess this year is very much the same as what he said last year.
iii) The changes in the policy to cushion/taper and provide support for the currently waning growth environment: how effective will it be?
iv) China’s 2.5b deal with Italy: how good is it?

Sources:
GDP Data: https://fred.stlouisfed.org/series/GDPC1/
China-Italy Deal: https://www.reuters.com/article/us-italy-china-dimaio/italy-signs-deals-with-china-worth-25-billion-euros-more-to-come-di-maio-idUSKCN1R40I0
Fed statement: https://www.federalreserve.gov/newsevents/pressreleases/monetary20190320a.htm

Originally published at http://thestrangecommoner.wordpress.com on March 24, 2019.