Strong US data sparks talk of Fed stimulus slowdown

Data showing multi-year highs for both house prices and consumer confidence in the US pointed to strength in the world's largest economy yesterday, with the improved outlook refocusing attention on the possibility that the Federal Reserve might soon begin rolling back the stimulus measures that have been supporting activity across the country.

A widely followed index of house prices across 20 US cities showed that, in year-on-year terms, values had climbed by 10.9 per cent over March, the biggest rise since April 2006. The Standard & Poor's/Case-Shiller index had been expected to show a gain of 10.2 per cent. On a monthly basis, prices were up 1.1 per cent over March, once again topping forecasts, as the combination of rising sales and low inventories drove up home values.

American consumers, meanwhile, grew more confident in May, according to a separate report from the Conference Board industry group. Its index of consumer attitudes rose to 76.2 over the month, up from an upwardly revised reading of 69 for April. The result was the most positive since February 2008, before the financial crisis reached its peak later that year. Most economists had expected the index to rise to around 71.

The jump in consumer confidence, which drove up stock markets, could herald further improvements in jobs and the wider economy, as about 70 per cent of the US economy is accounted for by consumer spending.

The data comes just days after Ben Bernanke, the chairman of the US Federal Reserve, signalled to Congress that the central bank could take a decision to slow the pace of its bond-buying programme in the "next few meetings" of its policy-setting Open Market Committee (FOMC).

Currently, the Fed is purchasing $85bn in mortgage-related and government bonds to ensure the US economic recovery remains on track. But yesterday's data is likely to bolster the case of policymakers at the central bank who want to taper the bond buying programme earlier.

Last week, the minutes of the two -day FOMC meeting that concluded on 1 May showed that some hawks were thinking about narrowing the scope of the programme "as early as the June meeting".

Although that is still seen as unlikely – those who expressed a willingness to do so by June "differed about what evidence would be necessary and the likelihood of that outcome" – economists are increasingly factoring in some kind of readjustment by the end of this year.

Economists at HSBC, in a report published yesterday morning, forecast that the Fed will cut the level of its monthly bond purchases to $55bn in December.

In all, they anticipate that with the economy still some distance from being fully recovered, the central bank's purchases will range between $500bn-$600bn next year, down from what is expected to be a final figure of $1 trillion in 2013.

"This represents not a tightening, merely less aggressive easing," the HSBC report said.