Stephen Foley: It's a guessing game over the US economy
Stephen Foley is a former Associate Business Editor of The Independent, based in New York. He left in August 2012. In a decade at the paper, he covered personal finance, the UK stock market and the pharmaceuticals industry, and had also been the Business section's share tipster. Between arriving with three suitcases in Manhattan in January 2006 and his departure, he witnessed and reported on a great economic boom turning spectacularly to bust. In March 2009, he was named Business and Finance Journalist of the Year at the British Press Awards.
Saturday 28 July 2012
US Outlook: Officials at the Federal Reserve sparked a mini-stock market rally midweek when they briefed journalists that a new round of monetary stimulus will be on the agenda of the Federal Open Market Committee when it meets next week.
On the evidence of yesterday's GDP figures for the second quarter, the Fed would be better off keeping its powder dry.
The US economy grew at an annualised rate of 1.5 per cent, sharply lower than the 2.0 per cent of the first part of the year and the 4.1 per cent pace on which we ended 2011, but still not in recessionary territory.
Business spending was better than feared, helping to offset some of the headwinds from spending cuts in local and state government and from a US consumer still trying to pay off debts and worried about their jobs.
The issue for the Fed is not so much that the economy is not weak enough to justify a new round of bond-buying in what is now universally known as QE3 (a third burst of quantitative easing). It is that quantitative easing has diminishing returns, and the central bank ought to conserve ammo just in case a malfunctioning Congress fails to head off the massive, contractionary tax hikes that are due on 1 January.
The central case is that politicians will indeed come together to extend most of the Bush-era tax cuts before they expire, and delay the imposition of spending cuts for the military – but probably not until the last minute.
Between now and then, the uncertainty could weigh down business spending, which is why the world's largest economy could get still worse before it gets better.
- 1 Al Pacino on suffering from depression: 'It can last and it's terrifying'
- 2 Half of young women unable to ‘locate vagina’ and 65% find it difficult to say the word
- 3 Saudis risk new Muslim division with proposal to move Mohamed’s tomb
- 4 A teacher speaks out: 'I'm effectively being forced out of a career that I wanted to love'
- 5 Mexican woman becomes world’s 'oldest person' at 127
Perez Hilton apologises for publishing Jennifer Lawrence naked photo leak
Victoria Justice on naked photo leak: 'Let me nip this in the bud right now – pun intended'
Jennifer Lawrence 'nude photo hacker' claims there are hundreds more celebrity images to be published
Saudis risk new Muslim division with proposal to move Mohamed’s tomb
Ariana Grande nude photos leak: Pictures are completely fake, say singer's representatives
Rotherham child sex abuse scandal: Labour Home Office to be probed over what Tony Blair's government knew - and when
What do immigrants really think of Britain? Polish immigrant's Reddit post goes viral
Ashya King: Parents of five-year-old boy refused permission to visit him in hospital and denied bail at Spanish court
With Douglas Carswell joining Ukip, my party has taken another giant step forward
When elitism grips the top of British society to this extent, there is only one answer: abolish private schools
Ashya King: 'Cruel NHS has not given us the treatment we need', says father of five-year-old with brain tumour who fled to Spain
iJobs Money & Business
£60000 - £75000 per annum + BONUS + BENEFITS: Harrington Starr: Business Anal...
£40000 - £50000 per annum + benefits+bonus+package: Harrington Starr: SQL Impl...
£85000 per annum: Harrington Starr: Head of IT (Windows, Server, VMware, SAN, ...
£40000 - £50000 per annum: Harrington Starr: You will not be expected to hav...