"I look good now, don’t I?" chairwoman of the Federal Reserve Janet Yellen asked fellow passengers late last week on a flight back to Washington. She was not speaking about the U.S. economy (referring in reality to her physical health), but she might as well have been. Second quarter GDP was revised up to positive 3.9%, a two-tenths revision. Consumer spending, comprising more than two-thirds of the overall figure, increased 3.6% versus the previous estimate of 3.1%. Corporate profits were also revised up to 2.6% from the 1.3% reported last month. Higher GDP is good news for bond investors who eventually want to achieve higher-yielding portfolios without an increase in risk (remember the days when a bank savings account returned 5% per annum?). All this comes to bear as the Federal Reserve mulls raising interest rates this year. The evening before her flight, Yellen said in a speech that she still expects to raise interest rates in 2015, referring to expectations of increasing inflation and tightening slack in the labor market. Our portfolios are positioned to weather gradual interest rate increases consistent with Yellen and the Fed’s guidance. After all, the U.S. economy is looking pretty good right now.
Sources: Bloomberg, CNBC, WSJ, Federal Reserve, SNWAM Research