Economic Growth Takes Hit with Fed's Commerce Dept.

Perhaps the much-maligned status quo wasn’t so bad, from an economic perspective. Slow, lackluster growth levels had been the norm over the last couple of years. However, information handed down by the Commerce Department and Federal Reserve Wednesday finally showed change: in the form troubling backtracking.

The Commerce Department announced that fourth-quarter economic growth declined 0.1%. While the decline barely entered into negative territory, it marked the first time contraction has been officially reported since 2009.  Among the notable reasons: less buying of inventory by businesses and a reduction in exporting activity. Market-watchers had been expected a full percentage point of growth, making the news a bit of a shock.

Hours later, the Fed’s Federal Open Market Committee said that economic growth had “paused,” trying to pin the disappointment on “weather-related disruptions and other transitory factors.” This differed from the broken record messages of moderate economic growth the FOMC trotted out after several consecutive meetings. The committee also noted “somewhat” acceptable inflation levels prone to energy volatility, rather than low ones. The FOMC did note it anticipate both to rebound to the previous ranges in the short term and ongoing.

The Fed’s voting members opted to keep its target for the federal funds rate at a historically low range between 0 and 0.25%, which is expected through 2015 based on previous statements, while also continuing its asset purchases designed to support a faster economic rebound.

-Brian Shappell, CBA, NACM staff writer

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