Cautious optimism as US economic growth exceeds expectations

Travel on the road to recovery seen as modest but significant while Fed opts to stay the course on bond programme – for now

New York

The Federal Reserve tempered its optimism about the pace of growth in the world's largest economy yesterday, keeping its stimulus measures in place, even as new figures showed that the US had expanded at a faster than expected rate in recent months.

Figures from the Commerce Department showed that output had climbed at an annualised pace of 1.7 per cent between April and June, which was a much better result than the 1 per cent expansion that was forecast by economists.

While the positive second-quarter figure was accompanied by a downward revision to data for the first quarter, the report underscored the sense that the American economy was gathering momentum.

The Commerce Department said that the US had expanded by 1.1 per cent between January and March, compared with an earlier estimate of 1.8 per cent.

Yesterday's report also included revisions to historical data as part of a periodic overhaul of the underlying methodology.

The revised figures showed that the US grew at a pace of 2.8 per cent over 2012, compared with a previous estimate of 2.2 per cent.

However, optimism about the revision was tempered by the proviso that much of the additional growth occurred early in the year.

The overall picture was of an economy that, while it is recovering, has endured a rocky time as it emerges from the recent recession. The figures were immediately scrutinised for clues about the outlook for monetary policy, with the Fed, which is currently is buying up $85bn (£56bn) worth of mortgage-related and government bonds each month, debating a reduction in the programme. In a policy statement issued after the GDP figures, the Fed said the pace of expansion in the US over the first half of 2013 had been "modest", a shift in emphasis last month, when the central bank said the economy had been expanding at a "moderate pace."

Highlighting rising mortgage rates and low inflation as indicators that would monitor closely, the bank said it would keep its bond programme intact for now.

Previously, the Fed chairman Ben Bernanke has indicated that the Fed might begin reducing the scope of the programme later this year – a process that has become known as 'tapering' – and potentially wind it down completely around the middle of next year.

The suggestion has already caused sharp swings on markets worldwide, as investors eye the beginning of the end of a loose monetary regime in the world's largest economy.

Complicating the calculations for those on the outside is the expected change in the leadership of the Fed, with Mr Bernanke widely anticipated to step down early next year.

His deputy, Janet Yellen, and the former US Treasury Secretary, Larry Summers, are seen as frontrunners to replace Mr Bernanke. An announcement on the succession is likely to be made in the autumn.

Until then, speculation is likely to continue about how the next Fed chairman might influence policy changes, with Mr Summers having previously questioned the impact of quantitative easing.

Start your day with The Independent, sign up for daily news emails
Life and Style
healthMeet the volunteer users helping to see if the banned drug can help cure depression and addiction
Arts and Entertainment
tvDick Clement and Ian La Frenais are back for the first time in a decade
Life and Style
tech
News
i100
News
Foo Fighters lead man Dave Grohl talks about the band's forthcoming HBO documentary series
people
News
i100
News
ebooksAn unforgettable anthology of contemporary reportage
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Guru Careers: Pricing Analyst

£30 - 35k: Guru Careers: We are seeking a Pricing Analyst to join a leading e-...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £45K YR1: SThree: At SThree, we like to be dif...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + competitive: SThree: Did you know? SThree is a mul...

Guru Careers: C# Project Team Lead

£55 - 65k (DOE): Guru Careers: A unique opportunity for a permanent C# Develop...

Day In a Page

Thousands of teenage girls enduring debilitating illnesses after routine school cancer vaccination

Health fears over school cancer jab

Shock new Freedom of Information figures show how thousands of girls have suffered serious symptoms after routine HPV injection
Fifa President Sepp Blatter warns his opponents: 'I forgive everyone, but I don't forget'

'I forgive everyone, but I don't forget'

Fifa president Sepp Blatter issues defiant warning to opponents
Extreme summer temperatures will soon cause deaths of up to 1,700 more Britons a year, says government report

Weather warning

Extreme summer temperatures will soon cause deaths of up to 1,700 more Britons a year, says government report
LSD: Speaking to volunteer users of the drug as trials get underway to see if it cures depression and addiction

High hopes for LSD

Meet the volunteer users helping to see if it cures depression and addiction
Why the cost of parenting has become so expensive

Why the cost of parenting has become so expensive

Today's pre-school child costs £35,000, according to Aviva. And that's but the tip of an iceberg, says DJ Taylor
Fifa corruption: The officials are caught in the web of US legal imperialism - where double standards don't get in the way

Caught in the web of legal imperialism

The Fifa officials ensnared by America's extraterritorial authority are only the latest examples of this fearsome power, says Rupert Cornwell
Bruce Robinson: Creator of Withnail and I on his new book about Jack the Ripper

'Jack the Ripper has accrued a heroic aura. But I'm going after the bastard'

The deaths of London prostitutes are commonly pinned on a toff in a top hat. But Bruce Robinson, creator of Withnail and I, has a new theory about the killer's identity
Fifa presidential election: What is the best way to see off Sepp Blatter and end this farce?

Michael Calvin's Last Word

What is the best way to see off Sepp Blatter and end this farce?
Mediterranean migrant crisis: 'If Europe thinks bombing boats will stop smuggling, it will not. We will defend ourselves,' says Tripoli PM

Exclusive interview with Tripoli PM Khalifa al-Ghweil

'If Europe thinks bombing boats will stop smuggling, it will not. We will defend ourselves'
Raymond Chandler's Los Angeles: How the author foretold the Californian water crisis

Raymond Chandler's Los Angeles

How the author foretold the Californian water crisis
Chinese artist who posted funny image of President Xi Jinping facing five years in prison as authorities crackdown on dissent in the arts

Art attack

Chinese artist who posted funny image of President Xi Jinping facing five years in prison
Marc Jacobs is putting Cher in the limelight as the face of his latest campaign

Cher is the new face of Marc Jacobs

Alexander Fury explains why designers are turning to august stars to front their lines
Parents of six-year-old who beat leukaemia plan to climb Ben Nevis for cancer charity

'I'm climbing Ben Nevis for my daughter'

Karen Attwood's young daughter Yasmin beat cancer. Now her family is about to take on a new challenge - scaling Ben Nevis to help other children
10 best wedding gift ideas

It's that time of year again... 10 best wedding gift ideas

Forget that fancy toaster, we've gone off-list to find memorable gifts that will last a lifetime
Paul Scholes column: With the Premier League over for another year, here are my end of season awards

Paul Scholes column

With the Premier League over for another year, here are my end of season awards