The Fed revises the forecast it posted in response to indavertently posting the forecast

According to a new notice posted on the Federal Reserve's website Friday evening, the growth numbers posted earlier in the day were incorrect and did not reflect the Staff's June views on the outlook. The new release reports 2015 GDP growth of 1.55%. The revision is substantially lower than the 2.3% reported earlier. The lower number implies that Fed staff took the -0.2% print of Q1 GDP as representative of the underlying momentum in the economy and carried some of that weakness forward into Q2 and perhaps beyond. As it is well documented, it is believed Q1 GDP was held down by a combination of statistical noise (residual seasonality) and one-off factors (the resolution of the port strike and a small weather effect) none of which should remain a drag on growth beyond that quarter.

The low staff forecast explains much of the dovish shift in tone surrounding the June FOMC meeting. The 1.55% projection for Q4/Q4 growth in 2015 is very weak. The Fed's June forecast yields a 0.9% Q2 growth rate.  If the FOMC believed the staff June forecast, they were seeing an economy very different from what was perceived. Should such a forecast be realized, the FOMC would likely postpone its tightening cycle until the economy reached a firmer footing. The forecast has not been realized.

"We maintained our September call following the June FOMC in large part because we looked through Q1 weakness and maintained our conviction that the economy would continue to firm into the summer. To date, this conviction has been supported. Data received since mid-June have generally surprised on the upside, pushing our Q2 tracking estimate to 3.4%. Fed staff will likely revise their 2015 forecast higher, as their Q2 estimate rises in response to the data flow. The upward revision to the forecast should give the FOMC increased confidence in the underlying momentum in the US economy, keeping them on track for a rate hike this year. Indeed, the Chair's less dovish tone in her testimony before Congress two weeks ago compared with that in the press conference following the June meeting likely reflects an upwardly revised staff forecast", says Barclays.