Given the plunge in first quarter real GDP in the US, it is probably not surprisingly that the full year 2014 GDP estimates are falling as well. In fact since February, according to Consensus Economics, real GDP estimates for the US have fallen by 68 basis points to 2.21% through June. So far 2015 estimates have held relatively steady at just over 3% growth.
What may cause some concern at the Fed is that even though growth estimates are tumbling, inflation expectations are starting to creep higher. The CPI estimates for 2014 have risen by 20bps from February to June. TIPS derived breakeven inflation has also been moving higher. The 5-year TIPS breakeven inflation is 37 bps higher than the lows made in April and the 10-year TIPS breakeven inflation is 18 basis points higher. Finally, one of the Fed's preferred measure of inflation expectations, the 5-year 5-year forward break even inflation rate, has risen by about 19 bps since early May. The positive news on this front t is that the absolute level, 2.60%, is still fairly tame.