White House economic advisor Larry Kudlow says the Federal Reserve should still cut interest rates despite strong economic growth in the first quarter.
The government said gross domestic product, or GDP, expanded by 3.2% in the first quarter of this year, which the veteran financial guru and former Ronald Reagan adviser called “a blow out number.”
“The inflation rate continues to slip lower and lower,” Kudlow told CNBC.
He said the current economy is in a “prosperity cycle” that “is gaining momentum, not losing momentum,” said Kudlow, who worked as Reagan’s budget deputy between 1981 and 1985.
“The inflation rate continues to slip lower and lower,” said Kudlow, who served as the Trump campaign's senior economic adviser.
“Even according to the Fed’s own spokespeople, from the chairman on down, that could open the door to a target rate reduction,” Kudlow added.
Kudlow, the director of President Donald Trump’s National Economic Council, said the argument for cutting interest rates was coming by the Fed’s own metrics.
“We are clicking on all cylinders, the inflation rate is coming down, the Federal Reserve will be looking at that,” Kudlow said.
Kudlow spoke hours after the government said U.S. economic growth accelerated in the first quarter, but the burst in growth was driven by a smaller trade deficit and the largest accumulation of unsold merchandise since 2015, temporary boosters that are seen weighing on the economy later this year, Reuters reported.
The surge in growth reported by the Commerce Department on Friday put to rest fears of a recession, that were stoked by a brief inversion of the U.S. Treasury yield curve in March. But it also exaggerates the health of the economy as consumer and business spending slowed sharply, and investment in homebuilding contracted for a fifth straight quarter.
Gross domestic product increased at a 3.2 percent annualized rate in the first quarter, the government said in its advance GDP report. Growth was also driven by increased investment in roads by local and state governments.
“The gain in first-quarter GDP would seem to make a mockery of claims that the U.S. economy is slowing as the fiscal stimulus fades,” said Paul Ashworth, chief U.S. economist at Capital Economics in Toronto. “Looking beyond the headline number, however, there are plenty of causes for concern.”
The economy grew at a 2.2 percent pace in the October-December period. Economists polled by Reuters had forecast GDP increasing at a 2.0 percent rate in the first three months of the year. The economy will mark 10 years of expansion in July, the longest on record.
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