It’s shaping up to be a busy week on both the political and economic fronts, with activities that will continue to test the resilience of investors and economists. As the nation shifts its attention periodically to the upcoming economic data releases amidst high-profile events such as former President Donald Trump’s trial, this Thursday will focus on the first estimate of GDP growth for the quarter and a key inflation metric, both closely monitored by the Federal Reserve.

Preliminary estimates suggest that GDP grew between 2.9% and 3.1%, slightly below the prior quarter’s gain of 3.4%. Analysts believe this robust growth is primarily driven by continued strong consumer and government spending.

According to Comerica Bank economists Bill Adams and Waran Bhahirethan, “Real GDP growth likely slowed in the advance estimate for the first quarter after a 3.4% annualized increase in the fourth quarter of 2023.” They point to a probable decrease in residential investments, specifically in multifamily home building, which contrasts with decent momentum in consumer spending and government outlays.

Unpacking the Dynamics of Inflation and GDP

The personal consumption expenditures (PCE) price index for March is projected to rise by 0.3% month-over-month. The core PCE price index, which excludes volatile food and energy prices and is the Federal Reserve’s preferred inflation gauge, is expected to have risen at an annual rate of 2.7%, significantly overshooting the Fed’s 2% target. “Firmer-than-expected inflation at the start of the year has extended the journey back to the Fed’s 2% target,” said Sam Bullard, senior economist at Wells Fargo. He predicts a steep path to lower inflation rates, tempered by rising prices of food and energy-related commodities in the near term. As supply chain disruptions resolve and labor cost growth moderates, services inflation is expected to ease.

This suggests that while core PCE inflation may remain sticky on a year-over-year basis into 2024, there is optimism for a gradual realignment towards the Federal Reserve’s target.

Our Take

In the wake of the confluence of political events with economic data, it is critical to maintain a vigilant yet steady course in economic policymaking. The upcoming data offer more than just a snapshot of past and present economic conditions; they provide crucial insights for future monetary policy directions. In a politically charged environment, it is essential that economic decisions are guided by data and rooted in economic reality, free from the influence of transient political currents or populist sentiments.

As conservatives, we must advocate for policies that ensure economic stability and growth, while keeping a close eye on maintaining inflation within target bounds. We need to support measures that bolster the economy without exacerbating inflationary pressures. The data due this week will be pivotal in shaping the Federal Reserve’s response, and it is crucial that we support a path that balances economic growth with financial stability. In these times of economic uncertainty, a conservative approach to economic management—one that emphasizes fiscal responsibility and sound monetary policy—is not just preferable; it is necessary for the enduring prosperity of our nation.