Outlook: Always Summer

YOU WOULD expect the US Treasury Secretary to be bullish about his own economy - most Americans are. But Lawrence Summers is also an economist by background and you might therefore expect him also to temper his optimism with a degree of caution and self doubt. He does not. Mr Summers, in London briefly on route to the G20 in Berlin, is the latest policy honcho to proclaim that the American economy is going from strength the strength. This week's figures seem to bear him out. Production has accelerated again, business confidence has risen again, yet there is still not a whisper of inflation in the statistics.

To be fair to Mr Summers, he also warned of the need to steer clear of any complacency. And down the road from the US Treasury, in the equally magnificent Federal Reserve headquarters, Alan Greenspan, optimistic as he is about the changes in the economy, will be alert as ever for hints of inflationary pressure.

Given that the entire community of analysts on Wall Street appears to have decided inflation has been abolished, this might be precisely the time to start worrying about where US and ultimately world inflation could be heading. Even the most ardent New Economy converts would be hard pushed to argue that the American economy can grow at a trend rate of 4-5 per cent without triggering inflation. The pace of expansion is well above any plausibly sustainable trend, and will have to slow. That is not happening spontaneously, so eventually the breaks will have to be applied through further rises in interest rates.

For the time being, most people think they won't have to be raised by much, but we could be in for a rude awakening. A third of American employers say they are finding it hard or impossible to fill jobs. Revised figures from the Bureau of Economic Analysis suggest that the total wage bill in the private sector has been growing at a sprightly 8 per cent, well above the pay growth reflected in the headline hourly earnings figures on which financial markets concentrate. In the pipeline are big increases in health costs and probably a $1 rise in the minimum wage from $5.15 an hour. The official figures also fail to take account of the growing amount of pay taken in the form of shares and share options.

The good news story about US economic prospects has taken too firm a hold for such warning signals to dent confidence - or share prices - for now. But once the Y2K fears are safely out of the way, Mr Greenspan will start preparing the markets for a rate rise at the next Fed meeting in early February. As the US economy enters the history books for the longest expansion ever, he will need to point it towards the runway with some vigour if he is to achieve the soft landing Mr Summers seems so confident of.

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksA special investigation by Andy McSmith
  • Get to the point
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

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £45,000: SThree: SThree Group have been well e...

Ashdown Group: IT Manager / Development Manager - NW London - £58k + 15% bonus

£50000 - £667000 per annum + excellent benefits : Ashdown Group: IT Manager / ...

Recruitment Genius: Sales Consultant / Telemarketer - OTE £20,000

£13000 - £20000 per annum: Recruitment Genius: Scotland's leading life insuran...

Ashdown Group: Training Programme Manager - City, London

£40000 - £45000 per annum + benefits : Ashdown Group: Training Programme Manag...

Day In a Page

Where the spooks get their coffee fix: The busiest Starbucks in the US is also the most secretive

The secret CIA Starbucks

The coffee shop is deep inside the agency's forested Virginia compound
Revealed: How the Establishment closed ranks over fallout from Loch Ness Monster 'sighting'

How the Establishment closed ranks over fallout from Nessie 'sighting'

The Natural History Museum's chief scientist was dismissed for declaring he had found the monster
One million Britons using food banks, according to Trussell Trust

One million Britons using food banks

Huge surge in number of families dependent on emergency food aid
Excavation at Italian cafe to fix rising damp unearths 2,500 years of history in 3,000 amazing objects

2,500 years of history in 3,000 amazing objects

Excavation at Italian cafe to fix rising damp unearths trove
The Hubble Space Telescope's amazing journey, 25 years on

The Hubble Space Telescope's amazing journey 25 years on

The space telescope was seen as a costly flop on its first release
Did Conservative peer Lord Ashcroft quit the House of Lords to become a non-dom?

Did Lord Ashcroft quit the House of Lords to become a non-dom?

A document seen by The Independent shows that a week after he resigned from the Lords he sold 350,000 shares in an American company - netting him $11.2m
Apple's ethnic emojis are being used to make racist comments on social media

Ethnic emojis used in racist comments

They were intended to promote harmony, but have achieved the opposite
Sir Kenneth Branagh interview: 'My bones are in the theatre'

Sir Kenneth Branagh: 'My bones are in the theatre'

The actor-turned-director’s new company will stage five plays from October – including works by Shakespeare and John Osborne
The sloth is now the face (and furry body) of three big advertising campaigns

The sloth is the face of three ad campaigns

Priya Elan discovers why slow and sleepy wins the race for brands in need of a new image
How to run a restaurant: As two newbies discovered, there's more to it than good food

How to run a restaurant

As two newbies discovered, there's more to it than good food
Record Store Day: Remembering an era when buying and selling discs were labours of love

Record Store Day: The vinyl countdown

For Lois Pryce, working in a record shop was a dream job - until the bean counters ruined it
Usher, Mary J Blige and Will.i.am to give free concert as part of the Global Poverty Project

Mary J Blige and Will.i.am to give free concert

The concert in Washington is part of the Global Citizen project, which aims to encourage young people to donate to charity
10 best tote bags

Accessorise with a stylish shopper this spring: 10 best tote bags

We find carriers with room for all your essentials (and a bit more)
Paul Scholes column: I hear Manchester City are closing on Pep Guardiola for next summer – but I'd also love to see Jürgen Klopp managing in England

Paul Scholes column

I hear Manchester City are closing on Pep Guardiola for next summer – but I'd also love to see Jürgen Klopp managing in England
Jessica Ennis-Hill: 'I just want to give it my best shot'

Jessica Ennis-Hill: 'I just want to give it my best shot'

The heptathlete has gone from the toast of the nation to being a sleep-deprived mum - but she’s ready to compete again. She just doesn't know how well she'll do...