The U.S. economy is expanding at a 4.1 percent annualized rate in the third quarter, the Atlanta Federal Reserve’s GDPNow forecast model showed on Friday, following the release of the latest payrolls and trade data.
That was unchanged from the pace calculated on Monday by the Atlanta Fed’s forecast program. The next GDPNow update is Wednesday, October 10.
Nonfarm payrolls increased less than expected in September, likely due to the effect of Hurricane Florence, though data for July and August was revised higher, a Labor Department report showed.
The economy needs to create roughly 120,000 jobs per month to keep up with growth in the working-age population.
Despite the Trump administration’s protectionist trade policy, the trade deficit continues to deteriorate. The trade gap surged 6.4 percent to a six-month high of $53.2 billion in August, the Commerce Department reported on Friday.
Meanwhile, Federal Reserve Bank of New York President John Williams endorsed the idea that the Fed will raise rates once more this year and three times next year with "a ways to go" before higher interest rates will start to slow the U.S. economy.
Last week the U.S. central bank raised interest rates for the third time this year, with the median of freshly published Fed forecasts showing policymakers expect to reach a policy target of 3.1 percent by the end of 2019, a full percentage point higher than the current rate.
"I think if you look at the center of the range... these are really pretty reasonable views of where the economy is likely to go and where policy needs to go in terms of sustaining this expansion," Williams said in an interview on Bloomberg Television.
At the same time, he said, "We have a ways to go to get to some idea of what people think of as neutral," referring to the theoretical "neutral" level of interest rates, at which borrowing costs neither stimulate nor restrain economic growth.
Fed officials currently estimate that rate at about 3 percent, but Williams said "we don't really know" where neutral is. As one of the few economists who have done ground-breaking work on estimating the neutral rate, his comment adds to a growing view that the Fed is relying less on the estimate of neutral to gauge how far to raise rates.
Fed Chair Jerome Powell signaled in August that he is not inclined to look to "neutral" as a guidepost for setting policy.
Williams, who of all the Fed presidents works closest with Powell to formulate the Fed's messaging, said on Friday that while neutral will play a role in setting rates, it is just "one piece of the puzzle" that also includes a close look at "wage growth, inflation, job growth, GDP growth: We look at a lot of indicators both in the U.S. and abroad."
U.S. job growth slowed sharply in September, likely as Hurricane Florence depressed restaurant and retail payrolls, a report released earlier on Friday showed, but the unemployment rate fell to near a 49-year low of 3.7 percent.
To Williams, the report signaled a strong job market and economic momentum, but with very few signs of inflation from wages or elsewhere, gradual interest rate hikes remain the "right path" for the Fed, Williams said.
Also, Atlanta Fed President Raphael Bostic said on Friday the U.S. central bank should continue to raise rates until it gets to a neutral policy stance in order to assess how the economy is really doing.
“Current conditions suggest, to me, that we ought to get to a policy stance where our foot is neither on the gas pedal — what we call an accommodative policy — nor on the brakes — what we call a restrictive policy,” Bostic said in a speech at an education conference in Atlanta.
“Such a neutral policy position would allow the economy to stand on its own,” he added.
Last week the U.S. central bank raised interest rates for the third time this year to a target range of between 2 and 2.25 percent. Fed officials currently estimate the neutral rate at about 3 percent.
Bostic also said that given the strength of the U.S. economy this year, he may have underestimated aggregate demand.
“If that’s the case, the potential for overheating would require a higher path for rates than what I had been thinking,” he said.
He noted, however, that business leaders in his district had not materially revised their outlook for the rest of the year and 2019 and did not currently expect to alter their capital investment spending plans. They did report some firming in labor costs.
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