The U.S. economy could expand at about a 2.2% annual rate in the current quarter, according to a revamped real-time estimate from the New York Federal Reserve released Friday.
According to the weekly New York Fed’s Staff Nowcast, the economy has been on an upward trend since late July.
The regional Fed bank had discontinued the real-time estimate during the pandemic. The New York Fed said the series will now be available weekly.
The New York Fed’s estimate is much lower than the Atlanta Fed’s GDPNow model, which shows growth could expand at a 5.6% annual rate in the current quarter.
Economists say the strength of the economy will be critical going forward in deciding whether the Federal Reserve needs to continue to raise its policy interest rate to cool inflation.
The Fed has been expecting the economy to slow in the second half of the year. Fed officials forecast only 1% growth for 2023. In the first six months of the year, U.S. gross domestic product is averaging about a 2% growth rate.
If the economy reaccelerates, it is likely that inflation will also move higher. Fed officials had been hoping that slower economic growth would continue push down inflation.
Faster growth means “you are probably going to get some inflation numbers that aren’t going to be as good as people were anticipating,” said James Bullard, the former president of St. Louis Fed president and now dean of Purdue’s business school.
“There is some risk that the Fed will have to go a little bit higher” even than the one more interest rate hike that the central bankers have penciled in this year, he said, in a recent CNBC interview.
The first official government estimate of third-quarter growth won’t be released until Oct. 26.
The picture of the health of the economy painted by U.S. GDP statistics can change quickly.
The growth estimates for the first half of the year could be revised at the end of September when the Commerce Department releases benchmark updates to GDP data.
The sharp revisions are one of the reasons why the Fed typically pays more attention to the unemployment rate and the inflation data.