As a counterweight to yesterdays IMF downward revision in its global growth forecast, the 2nd Quarter US GDP rose to 4%. This exceeded most analyst forecasts of around 3%. The 1st Quarter GDP was also revised upward from -2.9% to -2.1%.
So what does this mean? Has the tide turned and Jim Rickards forecast of a coming recession will be wrong? It's too early to tell. So far we have a very bad 1st quarter now offset by a better than expected 2nd quarter. We will get further revisions later on the 2nd quarter that could raise or lower todays reported number. And the overall rate for the year is still not good when you blend the two quarters together.
What this news does is setup the 2nd half of 2014 as the key to who will be right or wrong.
If the strong 2nd quarter results continue the rest of the year, Rickards will miss his recession forecast and we can expect the US FED will simply continue down the path they are on. An end to their QE program but continued low interest rates well into the future.
If growth drops off the second half of 2014 it will put the FED in a difficult position. They will have to admit that QE has not been successful and that their forecasts were too rosy once again. If they have to revert back to more QE, the markets will not react well to that.
For now this news will buy the FED more time and will probably just extend the status quo.
We'll track it here the rest of the year to see who was right and who was wrong for 2014.
Later today we will find out how the Argentina debt situation is resolved. Either they will make payment, default, or some last minute extension of time will be granted. We'll check on that tomorrow to see what happened.
Added note: Here is another article on the GDP news with a less rosy view. Here is another that notes that buried in the GDP report was a downward revision for 2011-2013. So we have to keep in mind that these reported numbers get changed a lot later on.
There does seem to be a consensus that the FED will have to show its hand by the end of the year as to whether there is a real recovery in place or not.
Update 2pm (CST): FED does as expected. I would not see this changing much for at least the next 2-3 months minimum. Nothing on the horizon right now to alter things significantly.
Update 7:30pm (CST): Argentina declared in default. But it may not mean much of anything yet. We will see what happens tomorrow in the news on this story.