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What Made Markets so Happy about Yellen’s Testimony?

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Part 3
What Made Markets so Happy about Yellen’s Testimony? PART 3 OF 8

Why the Fed Believes GDP in 2Q17 Will Bounce Back

Yellen’s answer regarding US economic growth

There has been a lot of concern in recent months regarding the slowdown in GDP in the first quarter. The US GDP growth rate in 1Q17 dropped to 1.4%, causing some concern for policy makers. The US House of Representatives Finance Committee made it a point to question Yellen on her view.

In its monetary policy report, the FOMC (Federal Open Market Committee) indicated that the slowdown in the first quarter was transitory and that members expect growth to be revived in coming months. Yellen also believes that the US economy will bounce back.

Why the Fed Believes GDP in 2Q17 Will Bounce Back

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Is the Fed’s view of an economic bounce back justified?

Although there has been a marked slowdown in the first quarter, the economic performance indicators reported in the last few months show signs of recovery. Analyst surveys indicate that the US economy could grow at a rate of 2.5% in the second quarter and by 3.0% in the third quarter.

This view has been backed by growth in employment numbers, gradual growth in the housing market (ITB) (XHB), rising household wealth, and optimistic consumer sentiment (XLY) (VCR).

Expected policies remain in the pipeline

Although not explicit, there appears to be some optimism about a few Trump administration policies that remain in the pipeline. Tax and fiscal reforms, if passed by Congress, could add to US economic growth, but it’s unclear how long the wait will be. Markets (SPY) are happy with the current state of growth of the US economy, regardless of delays from the Trump administration.

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