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Slightly stronger-than-expected US economic growth during the fourth quarter is likely to support moves by the Federal Reserve to increase the pace of its policy tightening. However, analysts say the revised GDP figures, in themselves, are not enough to pave the way.
Final readings show the US economy grew at an annualised rate of 2.1 per cent in the final three months of 2016, ahead of the previous two readings of 1.9 per cent and analyst expectations of 2 per cent.
The differences, however, are “not statistically meaningful”, says Joshua Shapiro, chief US economist at MFR. While growth in the fourth quarter was well below that of the third, the second half as a whole saw a substantially better pace of growth than the first half of the year.
Neil Wilson, a senior ETX Capital market analyst, said the figures were “only marginally better than expected” and that the case for interest rate increases will be based on leading indicators like inflation and jobs.
“Janet Yellen is probably right to suggest GDP data can be ‘noisy’. It’s shouting loud today but it’s hard to make out precisely what it’s telling markets,” Mr Wilson said.
With a continuation of good economic data, Alex Lydall, head of Dealing at Foenix Partners, said market participants could be “excused” for pricing in at least another two rate raises this year.
Bullish Q4 figures will give “another subtle nudge to Janet Yellen that any reference to ‘data dependence’ probably isn’t going to convince markets that two or more further hikes won’t occur this year”, he said.