Policymakers should realize two things about this completely expected data. First, it shows the utterly enormous scale of recovery the economy needs to mount before it is anywhere close to healthy. To put it simply, it could take years of historically fast GDP growth just to return the economy to the pre-COVID-19 status quo. Second, the today’s quarterly data mask important intra-quarter trends, and they miss troubling developments in the month of July, which we won’t see until the next quarterly data release. Concretely, the economic collapse of the second quarter largely happened in April (though it began in March in the first quarter of the year), with May and June seeing some rapid (but still woefully insufficient) bounceback. But this bounceback is likely to have already ended in July. Next Friday (August 7th) we’ll see data on employment growth in July. Many early data indicators strongly forecast flat or even negative employment changes in July.

The policy response to this should be clear. Even when the economy saw rapid bounceback in May and June, the COVID-19 economic shock inflicted so much damage in earlier months that the net result was an economic catastrophe for the second quarter. Even if this early bounceback had persisted in July, it would’ve needed substantial fiscal aid from Congress to continue. The fact that this bounceback has almost certainly stalled means this aid is even more necessary. Congress and the president need to restore the extra $600 in unemployment insurance so long as the job market remains damaged, and needs to provide large-scale, flexible aid to state and local governments to keep the coming revenue shortfalls facing these governments from translating into spending cuts and austerity that will starve U.S. households of needed help and drag on recovery in coming months.

Compared to the first six months of 2018, the economy in the first half of 2019 grew just 1.6 percent, a pronounced slowdown relative to the 3.9 percent growth between the first half of 2018 and the first half of 2017.

Some of this slowdown can be explained by a negative contribution from volatile inventory investment (which subtracted 0.9 percent off this quarter’s growth rate). But there is plenty to worry about in this report, as it showed pronounced weakness in both residential and nonresidential investment. Residential investment contracted at a 1.5 percent rate, and this sector has contracted for 18 months straight. The last contraction of housing construction that lasted this long began in the Great Recession. Nonresidential fixed investment (NRFI—or business investment), saw a large contraction as well, with investment in structures falling at a 10.6 percent rate. This represents the third time in four quarters this type of investment has contracted. Other components of NRFI— equipment and intellectual property products—also turned in weak performances relative to the last year’s trend. This weak investment performance coming a full 18 months after the effect of the Tax Cuts and Jobs Act (TCJA) should have been felt is a clear refutation of arguments that it would noticeably boost productive investment. Falling exports knocked 0.6 percent off of the quarter’s growth.

Today’s data provides more ammunition for those arguing that the Fed should cut interest rates at its next meeting. A growth slowdown is clearly happening, and, the parts of the economy one would have expected to be negatively impacted by previous rate hikes (investment and net exports) are showing clear signs of struggle. Most importantly, this quarter’s report represents the 39th time in 42 quarters since the beginning of 2009 where year-over-year core inflation has fallen short of the Fed’s long-term 2 percent target. Cutting rates next week would signal the Fed is getting truly serious about defending that target against disinflation.

The Bureau of Economic Analysis reported U.S. GDP—the widest measure of the nation’s economic activity—grew at a 3.2 annualized rate in the first three months of 2019, up from its 2.2 percent pace of growth in the previous quarter. However, 0.7 percent of today’s gains came from the accumulation of business inventories, a quite volatile and hard-to-interpret component of GDP. Final sales of domestic product rose just 2.5 percent.

One full percentage point of this growth was driven by a rise in net exports (a falling trade deficit). Against the backdrop of a growing trade deficit in recent years this reversal is welcome, but it is unclear if it will be sustained, particularly as the rest of the global economy seems to be slowing.

It has been widely expected that we will see a slowdown in the pace of growth from the previous year, as the fiscal stimulus the economy received fades. (Most of this stimulus stemmed from higher spending levels in 2018, but a bit stemmed from the implementation of the tax cuts passed at the end of 2017.) The first quarter growth number reported today indicates that this slowdown will at least be postponed.

Nonresidential business investment slowed markedly in today’s report, growing at just 2.7 percent. Given that greater investment is the linchpin for theories about how the 2017 tax cut was supposed to eventually lead to higher wage gains for U.S. workers, weak investment performance since its passage should be seen as quite damning.

Today’s data confirms that price inflation remains tame, with the measure of inflation most closely watched by the Federal Reserve (the price deflator for personal consumption expenditures excluding food and energy prices) growing just 1.7 percent over the past year—again undershooting the Fed’s 2 percent target and posting a second straight quarter of deceleration.

Today’s report is essentially a status quo indicator. The economy is growing, but hardly at a torrid pace. Tame inflation argues that efforts to boost growth by taking up more demand-slack are warranted, as they could lead to wage gains and greater equity of outcomes in the labor market without risking unacceptable inflation. At a minimum, today’s report gives no reason for the Federal Reserve to reverse their implied course of no further rate increases this year.

Besides an increase in spending, the other expansionary fiscal policy measure taking effect in 2018 was the tax cuts passed at the end of last year. While these cuts may have contributed a bit to the strong growth in consumption spending so far in 2018, they have largely failed to produce any obvious boost to business investment, which was the primary justification for the tax cuts’ passage made by the administration and congressional Republicans. Non-residential fixed investment grew at just a 0.8 percent annualized rate in the third quarter. So far in 2018, this investment has averaged 5.1 percent growth, down from growth in the first three quarters of 2017 (5.6 percent), a period before the tax cuts had passed.

Three final data points are worth mentioning. First, a full 2 percentage points was added to this quarter’s growth rate from accelerating inventory investment. This component of GDP is notoriously volatile. A common measure that strips it out (final sales) saw much less rapid growth (1.4 percent). Second, the trade deficit expanded rapidly and subtracted 1.8 percentage points from growth this quarter. If the Trump administration is trying to boost American competitiveness with its policy actions, it is clearly failing. Finally, the measure of “core” inflation tracked closely by the Fed (the price deflator for personal consumption expenditures excluding food and energy prices) rose 2.0 percent year-over-year. This is in line with the Fed’s long-run inflation target, but is not fast-enough growth to make up for much-slower rates of inflation in recent years.

Overall, GDP grew at a 2.3 percent annualized rate in the first three months of 2018, down from 2.9 percent growth in the last quarter of 2017. The component of GDP that the proponents of the tax cuts argued would respond most strongly to their passage was business investment. In the first quarter of 2018, the pace of growth of non-residential fixed investment actually decelerated slightly relative to the final quarter of 2017, falling from 6.8 percent to 6.1 percent. Some would claim that investment in the last quarter of 2017 was also influenced by expectations of the tax cut, making this comparison unfair. But investment growth also slowed when measured as the change from the same quarter in the previous year—falling from 5.4 percent in the last quarter of 2017 to 4.6 percent in the first three months of 2018. In short, there is nothing in today’s GDP report to indicate that the tax cut is working to boost economic growth or investment.

The deceleration in GDP in the first quarter of 2018 is particularly striking given that volatile inventory investment added substantially to growth in this quarter. Final sales—GDP stripping out volatile inventory investment—grew at just 1.9 percent. Key weakness in this report was in motor vehicles and parts, which subtracted 0.25 percent from the quarter’s growth rate.

Finally, there was a striking deceleration of “core” inflation measures in this report (prices excluding volatile food and energy). The year-over-year change in the price index for personal consumption expenditures—the measure that is targeted for 2 percent growth by the Federal Reserve—was just 1.5 percent, down from 1.9 percent in the preceding quarter. Yet again, the price data indicates that the economy is likely not running at full capacity.

Today’s data also lets us examine how the economy grew over the year that ended in December 2017. Between the end of 2016 and the end of 2017, the economy grew by 2.5 percent. This is a faster rate of growth than what prevailed in either 2015 (2.0 percent) or 2016 (1.8 percent), but it is far from unprecedented. Growth was faster in both 2013 and 2014, for example (2.7 percent growth in both of those years).

Importantly, the recent pickup in GDP growth is largely the result of faster productivity growth. Employment growth actually slowed in 2017 while output growth rose, which implies a pickup in productivity (the amount of economic output generated in an average hour of work). As I wrote almost a year ago, this pickup in productivity growth should not come as a surprise—productivity growth has been extraordinarily slow in recent years but it generally reverts to long-run averages. Further, the source of recent productivity growth weakness was clear—it was a continuing casualty of the enormous shortfall of demand caused by the Great Recession and its subsequent slow recovery. As the economy worked off this demand shortfall, it was always quite likely that a rebound in productivity growth would follow.

A key prediction made in that earlier paper was that the productivity rebound would likely be driven by a pickup in business fixed investment. When unemployment was extraordinarily high for years, businesses had little incentive to spend money to replace workers with capital equipment, because workers were cheap and plentiful. As the labor market tightens and workers became a bit harder to find and a bit more expensive (so far, however, just a bit more expensive), it is natural that businesses would lean harder on investing in plants and equipment rather than just hiring more people to boost output. This is exactly what happened in 2017: business fixed investment grew at its fastest rate since 2014.

The rebound in productivity growth is most welcome. Productivity provides the ceiling on how fast living standards can rise. Rapid productivity growth is a necessary, if not sufficient, condition for broad-based growth in incomes. Yet it is clear that there is nothing unexpected about this rebound in productivity, and it obviously was not driven by the recent GOP tax bill, the Tax Cuts and Jobs Act (TCJA). Today’s GDP report is about data collected before the TCJA was even passed, and most of the happier trends in today’s data were long-predicted.

Finally, today’s GDP report is another sign that the Federal Reserve should be extraordinarily cautious about shifting monetary policy in a more contractionary direction. Core price inflation (excluding volatile food and energy prices) continues to be far below the Fed’s 2 percent target (core prices rose just 1.5 percent over the past year). The uptick in growth and productivity has been long-awaited and should be welcomed by the Fed, not tamped down with interest rate increases.

All in all, today’s report is consistent with an economy that has steadily improved since mid-2009, with the pace of improvement too-slow but steady.

One important data point from today’s report is that a key measure of inflation (the “core” price deflator for personal consumption expenditures, which subtracts out volatile food and energy prices) continued to actively decelerate; growing at 1.1 percent over the past 12 months compared to last quarter’s reading of 1.2 percent. This is well below the Federal Reserve’s preferred 2 percent target. This signals strongly that while the economy continues to slowly improve, there is no danger of too-rapid growth leading to overheating and policymakers should let the expansion continue without trying to rein in its pace.

The economy’s weakness in the first quarter of 2017 was broad-based: personal consumption spending, business investment, and both federal and state/local spending decelerated significantly relative to the previous quarter. Auto vehicles and parts sales contracted and knocked 0.45 percentage points off of the quarter’s growth rate. Federal, state, and local spending also contracted, knocking a combined 0.3 percentage points off of the quarter’s growth rate—and further emphasizing how large a drag fiscal policymaking decisions have put on the economy in recent years.

Finally, today’s report confirms that inflation remains well under the Federal Reserve’s 2 percent long-run target. The year-over-year change in the price deflator for personal consumption expenditures excluding food and energy was just 1.6 percent.

Between the broad-based economic weakness and continued below-target inflation, today’s report provides a powerful signal that the Federal Reserve should not raise rates in the next Federal Open Market Committee meeting.

Besides slowing overall growth, this austerity has also contributed to the subdued price growth seen over this recovery. In the last quarter of 2016 core prices (excluding food and energy) rose at just a 1.3 percent rate, down from the 1.7 percent rate in the previous quarter. This slow growth in both GDP and prices is a strong indicator that the economy, though growing consistently, still has ample room to step up its pace of growth without sparking too-high inflation. In short, the Trump administration is inheriting a long-lived and stable recovery, but one with ample room to grow—so long as it’s not hampered by more spending cuts and fiscal austerity.