Today’s GDP report was a blow out. Current dollar spending increased at a 14 percent annual rate. Real growth rates and inflation were both 7 percent. These increases are much higher than available monthly data had suggested.
The strong increase in real growth shows the supply-side of the economy responded far beyond what might have been expected in meeting the surge in demand. The economy doesn’t have a supply-side problem. It has a demand-side problem. Demand is soaring so rapidly, there is no way supply can keep up.
The numbers show how irresponsible the Fed’s monetary policy has been, and continues to be. The Fed is so far behind the curve, it will likely have to move sooner and more aggressively than they expected to regain control of the money supply.
Given the 6- to 9-month lag between Fed action and its impact on the economy, the main implication of today’s report is inflation and interest rates will be moving sooner and higher than the Fed had anticipated.