Real interest rate declines after preliminary Q4 GDP revised down


Yesterday's GDP data show that the US economy decelerated at a higher pace than previously reported. Q4 GDP was revised to 2.7%, which is down from the previously reported number of 2.9% and lower than Q3's 3.2%. The revision is due to lower consumer spending and exports, with personal consumption expenditure up 1.4% compared with the prior forecast of 2.1%.

This is a case where bad news may be good news. The slowdown bolsters the case for a moderation in interest rates hikes. US 10-year real rates have been steaming ahead in February after the blowout NFP and CPI releases. Its trend's momentum is defined by the upward sloping trend line. Yesterday's action shows a breakdown (green vertical rectangle) through the trend line and a deceleration in the real rate trend.

There is still some volatility to come. Core PCE, the Fed's preferred measure of inflation, will be released today at 1:30pm GMT.

Image by Mediamodifier from Pixabay

Russell Shor

Senior Market Specialist

Russell Shor joined FXCM in October 2017 as a Senior Market Specialist. He is a certified FMVA® and has an Honours Degree in Economics from the University of South Africa. Russell is a full member of the Society of Technical Analysts in the United Kingdom. With over 20 years of financial markets experience, his analysis is of a high standard and quality.

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