A slowdown in fourth-quarter growth to near-zero that appeared nearly inevitable has disappeared, fading even with manufacturing still stuck in contraction.
, in a tweet Monday, repeated his insistence that the Fed should keep cutting. But economists think that's unlikely so long as the growth pattern remains intact."The report should change nothing for Fed officials who are assuming relatively soft manufacturing in their baseline economic scenarios," Citigroup economist Andrew Hollenhorst wrote. "Citi's official call remains for the Fed to remain on-hold next week and through 2020.
To be sure, there's still concern that the recent rebound could be a "head fake," as Evercore ISI's Krishna Guha speculated. While he doesn't hold a downturn steep enough that it would warrant a rate cut as his mostly likely scenario, Guha said central bank officials could be making a mistake in their recent indications that it will take a material change in conditions for them to make any moves on rates.
"Indeed the 'material reassessment' threshold in our view means that the next Fed rate cut, if it turns out to be required, is likely to be a risk-off cut in financial markets rather than a risk-on cut," wrote Guha, Evercore's head of global policy and central bank strategy.
"The inevitable recovery in manufacturing, which is highly cyclical, will give the economy the extra thrust going into next year," said LaVorgna, the Natixis economist. "Wouldn't it be great if 2020 turned out to be the best year of the cycle?"
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