Four things to learn from new GDP data

“These numbers should have the Federal Reserve saying, ‘low interest rates have not done anything to boost sustainable economic growth,' ” says Fred Dickson, chief market strategist at D.A. Davidson in Lake Oswego, Ore.

In fact, on CNBC, James Bullard, president of the St. Louis Fed and an inflation hawk, said he thought the Fed might have to start planning for “deflation,” that is the dropping of the price of goods and services. Economists consider deflation to be detrimental to the economy.

Mr. Dickson says the tighter regulatory climate has resulted in banks’ increasing their reserves and subsequently reluctant to lend money. He argues the regulators need to loosen their grip slightly. “It’s a classic case of overreaction,” says Dickson.

Any economic report from now until November will have a political tinge.

Immediately after the economic report was issued, Republicans were issuing press releases proclaiming the Obama recovery was “stalling out.”

The Republicans used the slower growth to argue that now is not the time to raise taxes. And, the head of the Republican party quoted economist Mark Zandi of Moody’s Economy.com as saying on PBS, “I would not allow those tax increases to take hold on January 1st either. I think the economy's still too fragile for that.”

Mr. Zandi says he did indeed make those remarks but adds that he actually thinks the current Bush-era tax rates should be made permanent for those who make under $250,000 a year. For those making more than that, higher tax rates should be phased-in starting in 2012, he argues.

“I would not take any chances with tax hikes until its clear unemployment is moving down,” says Zandi, who warns, “This is an important time – if we make a mistake and go back into a recession, we could be stuck there for a long painful period.”

Related:

• US deficit heads toward record $1.47 trillion
• Unemployment extension 101: what you need to know
• Blog: Why a high tax-to-GDP rate won't spur growth

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