Faith that the U.S. economy may finally be at a turning point for the better appears to be on the rise, as many ramp up expectations for a better Q2 and second half of the year.
But that does not mean that interest rates are likely to rise any sooner.
Goldman Sachs’s Jan Hatzius, one of the most dovish economists on when the Federal Reserve will eventually raise rates, has lifted his growth outlook but stuck to the view that the first interest rate rise off the near-zero floor won’t come for nearly two years, in early 2016.
The latest Reuters poll of Wall Street dealers on Friday still points to the second half of next year at least before the Fed, which is still printing tens of billions of dollars monthly as it winds down the third installment of its QE program, will start raising rates from 0-0.25 percent.
That may be too soon.
U.S. economic growth accelerated to 3.4 percent annualized in May according to Goldman’s calculations, an impressive rebound from 1.0 percent contraction in the first. Nobody, including Goldman, which had a 3 percent growth forecast for Q1 at the start of the year, correctly predicted how bad the first three months of the year would turn out.
But with solid jobs growth and room for the housing market to improve now that Treasury yields have plunged nearly half a percentage point since the start of the year, Hatzius says the economy has picked up to above-trend growth.