Slower Can Be Better Than Faster

Slower Can Be Better Than Faster

On Tuesday, June 25, the Commerce Department lowered its estimate of first quarter GDP growth to 1.8% annualized. This was down from the 2.4% rise it previously reported. After this news, the market reversed its downward course and increased more than 100 points for three consecutive days. Normally, we’d expect to see the market react negatively to news that the economy was growing at a lower-than-expected pace.

In the previous week, the market had retreated amid concerns that the Fed would end QE3 and the days of easy credit were near an end. We believe there was some overreaction to the Fed’s statement about what would lead it to start winding down the central bank’s $85 billion-a-month bond buying program. Some of the market’s recovery could relate to a more careful review of what the Fed actually said.

At the same time, slower GDP growth also helped to calm fears that the economy was overheating and that an end to QE3 and the beginning of a period of higher interest rates was closer than most expected. The downward revision to first quarter GDP growth likely provides further support to this view. The market’s positive response to the news likely indicates that in the present environment a more moderate pace of economic growth is preferred over a faster one.


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