Treasury Secretary Snow predicts 3.5% growth for US

The US economy will enjoy another year of strong growth and low inflation, the Treasury Secretary John Snow said yesterday as he brushed aside concerns over rising interest rates.

Mr Snow said he expected the economy to grow 3.5 per cent this year, fuelled by rising consumer incomes and business investment. He challenged a claim by Professor Joseph Stiglitz, the Nobel Laureate economist, that the Iraq war could cost the world's largest economy $2 trillion (£1.1 trillion).

In a BBC interview, Mr Snow said: "We are in a very good position to see this good recovery continue and expand with growth rates for 2006 that are in the 3.5 per cent range for GDP, with strong job creation and a pick-up in pay levels for US workers." He said this came against a backdrop of an inflation situation "well in check" and played down fears the economy was being driven by unsustainable consumer spending.

"We are blessed with strong consumer spending but also have strong capital investment. That's occurring because businesses are so profitable. When they invest, they hire. When they hire, they create stronger labour market conditions. As long as consumers see their incomes rising, and I fully expect that to be the case ... they will continue to buy goods and services."

Mr Snow said the 13 interest rates rises since the middle of 2004 were "confirmatory" of the recovery and pointed to the historically low level of long-term interest rates as a measure of the "absence of inflationary expectations". He denied the US was vulnerable to a move by China to move some of their $800bn reserves out of dollars.

Mr Snow was challenged over claims by Professor Stiglitz that the Iraq war could cost more than $2 trillion when long-term costs such as lifetime healthcare for wounded solders were included. The report said US taxpayers would be burdened with costs that would hang over the budget long after the troops withdrew. Mr Snow said: "It [the $2 trillion figure] seems a magnitude higher than realistic estimates."