3Q15 GDP Forecast Drops Again! Down To 0.8 Percent -- October 27, 2015

The GDPNow model (a dynamic link) nowcast for real GDP growth (seasonally adjusted annual rate) in the third quarter of 2015 is 0.8 percent on October 27, down from 0.9 percent on October 20.

The model's nowcast for the contribution of inventory investment to third-quarter real GDP growth declined from -1.9 percentage points to -2.0 percentage points after this morning's report on durable goods manufacturing from the U.S. Census Bureau. The final nowcast for third-quarter GDP will be released tomorrow after the Census Bureau releases its advance report on U.S. international trade in goods.

This only adds to the story with this headline: Rate hikers at the Fed are running out of ammo.

The conditions add up to a headache for the Fed during a year in which Chair Janet Yellen and her top lieutenants repeatedly have expressed a desire to begin the rate normalization process. The first hike was supposed to happen in March, which would have been five months after the Fed ended its quantitative easing program, a series of monthly bond purchases that exploded the central bank's balance sheet past $4.5 trillion.

Now, the target again appears to be March, but in 2016. Traders at the CME assign just a 1 in 20 chance that the FOMC will announce a hike on Wednesday. The outlook has dimmed so much that traders say there's a 16 percent probability the Fed will still hold steady next September. 

One can argue how good, bad, or indifferent the last three/four Fed chairs have been (Janet Yellen, less than two years; Ben Bernanke, almost 8 years; Alan Greenspan, almost 19 years; Paul Volcker, 8 years) but none of them have been blamed (at least to the best of my knowledge by Krugman, Rush, or Savage) for having destroyed the US economy, but with less than two years on the job, Janet will raise rates at her own great peril. The good news is this: if she missteps, she will be close to the end of her four-year post and/or she will have a lot of time to dig herself out of her own hole, depending how one measures time.