Slump in US consumer confidence fuels QE calls
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.
Wednesday 31 August 2011
Consumer confidence in the US is at its lowest ebb since the depths of the credit crisis, according to new figures that gave fresh ammunition to economists who want another round of monetary stimulus from the Federal Reserve.
Although the US central bank's interest rate-setting committee is at its most divided in decades, one of the dovish members yesterday made a forceful case for action at the next meeting in three weeks.
Charles Evans, the president of the Chicago branch of the Fed, stopped short of calling for a new round of quantitative easing, but said the central bank should assure markets that there will be no premature end to the accommodative monetary policy – even if inflation starts to tick higher.
A 3 per cent inflation rate should be perfectly acceptable, Mr Evans told CNBC, even though the Fed's informal target is 2 per cent. The central bank could also make a commitment not to pull out any of the $2tn-plus (£1.3tn) it has pumped into financial markets until unemployment has fallen substantially from its 9 per cent level.
The Fed last month made an unprecedented promise to keep official interest rates at zero for two years, but three committee members voted against. It emerged last night that the committee was even more divided than previously thought. The August meeting minutes showed members split on whether inflation will rise or fall, and some members wanted additional monetary easing immediately. The 2013 policy promise was a compromise between the camps.
Economists, already bracing for a weak August unemployment report this week, reacted with alarm to yesterday's consumer confidence number. The Conference Board's monthly index plunged to 44.5 from 59.2 in July, its lowest level since April 2009. The debt-ceiling debate in Washington and stock market gyrations were blamed for the plunge.
Another drag on US consumer confidence is the weak state of the US housing market, where prices fell by 4.5 per cent in the year to June, according to the Case-Shiller index of 20 major metropolitan areas.
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