By Dan Calabrese ——Bio and Archives--May 27, 2016
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Gross domestic product rose at a 0.8 percent annual rate as opposed to the 0.5 percent pace reported last month, the Commerce Department said on Friday in its second GDP estimate for the January-March period. That was the weakest growth since the first quarter of 2015. The economy grew at a rate of 1.4 percent in the fourth quarter. But a sharp upward revision to income growth and a rebound in corporate profits in the first quarter brightened the picture. When measured from the income side, the economy grew at a 2.2 percent rate after expanding at a 1.9 percent pace in the fourth quarter.
Economists said strong income growth, together with signs the economy was picking up steam in the second quarter, could give the Federal Reserve the ammunition to raise interest rates as early as next month. The U.S. central bank increased rates in December for the first time in nearly a decade.The Fed is long overdue to raise interest rates, which have been kept artificially low for years because the Fed's Board of Governors think its their job to help produce economic growth and reduce unemployment - and nothing anyone else is doing toward those goals is working. Of course, the low interests rates isn't working either. The only reason the U-3 unemployment rate is so low is because of people dropping out of the workforce. And when interest rates are low, depositors don't earn a return, and it's hard for lenders to make money either. But the low interest rates are also keeping the federal government's cost of borrowing artificially low. The government regularly issues short-term bonds and then refinances them when they come due. As long as they can do that at relatively low rates, the shell game can continue. But once they have to pay the real interest rates they should have been paying all along, that changes tremendously, and you'll start to see interest on the debt explode as a budgetary item. That's why, contrary to what many liberals claim, it's a big problem right now that we're borrowing so much money to finance government operations. And it's about to become a much bigger one - especially if the Fed thinks 0.8 percent is the best growth they're going to get from this administration and they can't wait any longer.
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