US stocks open lower after GDP report

June’s unemployment rate of 5.3% continued a steady drop to pre-recession levels, but inflation continues to run below the Fed’s 2% target. And if the Fed doesn’t hike in 2015, 59 percent believe it will be due to declining inflation.

“There’s a movement in the right direction”.

Mesirow Financial’s chief economist, Diane Swonk, said that’s because the first-quarter ECI was boosted by fees and commissions and some of that is expected to be reduced.

This is more positive than comments made after the June meeting and may strengthen expectations of rates rising at the Fed’s September meeting.

Deutsche BankAt Bank of America Merrill Lynch, Michael Hanson wrote that, like Deutsche Bank and other firms, he doesn’t expect any wholesale changes to the Fed statement, looking instead for “a cautiously optimistic if noncommittal message”. “The year-over-year is still tracking at 1.3, and that’s basically what it has been”. There is also important monthly PCE, personal consumption expenditure data released Monday. “Consumers have deleveraged, the banking system has deleveraged, we got the blessing of low energy prices, housing prices started to stabilise and move higher”. The 10-year yield fell to 2.27 percent.

It also described the economy as “expanding moderately” in recent months.

“The economy’s not fantastic, and we have a need for duration”.

According to Commerzbank, “A first rate step in September remains possible as long as the data published until then does not disappoint massively”.

Ader said that while there was an uptick in inflation, it could be passing. But before taking any action it said it wanted to see “some further improvement in the labour market”.

The moves in the bond market and the picking apart of the GDP report highlights the dichotomy in the market over whether the Fed will raise rates or not, with a slow-growing economy and few signs of inflation.

“The Fed is going to be tightening policy for the first time in nine years”, said Phil Orlando, chief equity strategist at Federated Investors, predicting a likely September liftoff in a phone call. “I think there’s a little element of overthinking here”, he said.

There were no dissents in the Fed statement on Wednesday. Besides the additional improvement on the labour front, it said it also needed to be more confident that low inflation will rise to the 2 percent medium-term target. Still, the overall tone remains very dovish.in fact, the vote was 10 to 0 to keep the Fed Funds at the never-ending 0.00% to 0.25% target. Between now and the next Fed meeting in mid-September there will be two new reports each on employment and second quarter gross domestic product.

Central bank officials and market analysts have been waiting to see if weak economic growth in the first part of the year signalled the beginning of the end of an expansion, or merely a pause.

Keep in mind that in today’s release the BEA will incorporate updated methodical changes and seasonal adjustments that should in the end revise away some of Q1 blip – but not all.