Improvement In US GDP Strengthens Fears Of QE Tapering

The US Gross Domestic Product has seen a remarkable turnaround in the second quarter of the calendar year. The revised estimate for growth in the GDP for the April-June quarter is 2.5% on a quarter on quarter basis and 0.7% on a year-on-year basis. The consensus expectations of the GDP growth for the quarter stood at 2.2%, and the economy managed to fare better than that.

The government had earlier estimated that the economy would grow at a rate of 1.7% in the second quarter, but thanks to the healthy rise in the exports, the economy has shown a remarkable growth.

Data showed that the initial jobless claims fell by 6000 in the last week to 331000 showing further signs of recovery in the economy. This also improved the confidence in the US economy.

The smart recovery means that the US Fed may now really go ahead with the projected tapering of quantitative easing. The FOMC’s last meeting indicated that almost all the members are now in favour of QE tapering. There is no doubt that QE will exit completely sooner or later, and the only question now is when.

The FOMC had noted that “if economic conditions improved broadly as expected, the Committee would moderate the pace of its securities purchases later this year. And if economic conditions continued to develop broadly as anticipated, the Committee would reduce the pace of purchases in measured steps and conclude the purchase program around the middle of 2014”.

Surely, the GDP data has brought the message that QE tapering is on its way and could come in as early as September 2013. The next FOMC meeting slated for September 17-18, 2013 is key for the markets and may bring the much feared news to the world at large.