BW: Soft GDP report belies future acceleration

Michael Englund, chief economist for Action Economics, has a piece in Business Week entitled "Soft GDP Won't Stop Fed Inflation Fight - Even though U.S. economic growth underperformed in the advance report for the first quarter, component measures suggest a future acceleration" that tells us that "a closer look at the report shows upside surprises for measures of consumption and fixed investment that offer some good news for the 2007 growth outlook." He concludes by saying:

... even though first-quarter GDP underperformed, the components of the report suggest a pickup in coming quarters, especially if the housing market stabilizes. We suspect this won't be lost on the Fed. While Bernanke & Co. may acknowledge the weakness in the economy at its upcoming policy meeting, it's more likely to reiterate that recent indicators have been mixed and to retain its forecast for moderate growth ahead. We also expect policymakers to say that inflation remains the predominant risk, while restating that future policy adjustments will depend on upcoming data.

-- Jack Krupansky