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We Knew First-Quarter GDP Report Would Be Ugly, but It Was Hideous

The other reason the Fed should stand pat on rates is to boost pressure on companies to invest more.

At midyear and beyond, there's little doubt that the dip in consumer spending growth will go away -- what may persist, and needs to be addressed, is business' continuing reluctance to invest and boost productivity growth.

This is not a problem that policymakers created under Barack Obama -- I wrote about it as long ago as 2006. It has been a persistent issue, with some interruption during the best part of the last expansion, since the Web bubble popped in 2000.

The trouble is that using tight money as a cudgel against wage inflation, a course many economists still want the Federal Reserve to follow,  has given business an easy out. If Giant Corporation X knows Washington will make sure workers' financial ambitions are kept in check by tightening money when raises loom, then the cycle of underinvestment may continue indefinitely. It's always cheaper and easier to do nothing.

Don't forget: The Business Roundtable got more than $2 trillion of deficit reduction it sought between 2011 and 2013, which it said would boost business confidence. Then corporations boosted investment even more sluggishly, while the drag on consumer spending from budget cuts held back the recovery.

One reason money should stay loose is so corporations can invest cheaply in equipment and innovation. The other reason for loose money now is so businesses will have to invest -- because the Fed is rightly determined to let the recovery ride until workers begin to get raises again. A world where the best way to build profits is to invest, is a world where companies will invest.

So, sure, look at this morning's number and note that it's even worse than forecast -- which it is. But growth at midyear will offset it, and most of the problem was weather anyway.  The Fed is steady enough to stick to Chair Janet Yellen's emphasis on more jobs and higher wages, and keep interest rates low to make the recovery keep coming.

Below the surface, that the economy may be doing more to reward people who make things and less to reward those who skim from the top is likely to prove a very good piece of news indeed. And it will keep paying dividends long after everyone forgets today's headline.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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