Outlook: US rate rise is still a possibility
Outlook On supermarket domination and prospects for the US economy
Tuesday 30 September 1997
The conventional wisdom these days if that when the Fed is going to act, Alan Greenspan softens everybody up in advance. Far from preparing the ground carefully for tighter policy, the Fed chairman has been musing far and wide about the "new economy". He has floated the idea that productivity has been growing faster than the official figures suggest, and prices rising more slowly. Combined with extremely benign inflation figures, his comments have made everybody relax.
It would be a mistake, though, to assume that because of these considerations the Fed has ruled out increasing borrowing costs. A rise is more likely next month than this month, after the employment figures due on Friday and the preliminary estimate of America's GDP in the third quarter. But the economy has been expanding fast enough that a rate increase can not be completely ruled out even today.
The tight jobs market is one reason. Unemployment is lower than economists used to reckon it could get without triggering wage inflation, and growth in hourly earnings has started to edge up from its low base. With surveys starting to record a diminishing sense of job insecurity, anecdotal evidence is that the US may be truly at full employment.
Another reason is the overall pace of growth which, despite buoyant investment, is increasing the rate of capacity use. The annualised increase in GDP has been well above its trend rate in four out of the past five quarters, and the recovery is into its seventh year. The fact that inflation has not yet turned up is comforting but not compelling. Today's inflation rate is a reflection of what the economy was doing 12-18 months ago.
Nobody is arguing that the US economy is so out of hand that a big rise in interest rates is needed. It is a matter of a light touch on the brakes. Given that the risk of higher inflation is relatively small, the Fed might decide to continue erring on the side of favouring growth. On the other hand, it could equally well decide that with the economy so buoyant - and Wall Street still exuberant - the risk to growth is small enough to make an adjustment in interest rates well worthwhile.
- 1 Games of Thrones actor Lena Headey makes emotional promise to her unborn daughter
- 2 Isis burns woman alive for refusing to engage in 'extreme' sex act, UN says
- 3 Puerto Rico, island of lost dreams: People are leaving the debt-hit territory in droves as near neighbour Cuba's star rises
- 4 Female Muay Thai champion hustles coaches to give them a beating
- 5 Picture of couple posing with beached dolphin 'that later died' causes outrage
Isis burns woman alive for refusing to engage in 'extreme' sex act, UN says
Purity balls: Girls in the US making virginity pledges as fathers vow to 'protect purity'
Puerto Rico, island of lost dreams: People are leaving the debt-hit territory in droves as near neighbour Cuba's star rises
Female Muay Thai champion hustles coaches to give them a beating
16-year-old girl beaten and burned alive by lynch mob in Rio Bravo, Guatemala
As a white man, I'm surprised more women aren't tweeting the hashtag #KillAllWhiteMen
Scotland may have to leave the EU even if it votes to stay in, David Cameron confirms
Report finds that Britain's wages are the most unequal in Europe
The day that Britain resigned as a global power
Almost a third of school pupils believe 'Muslims are taking over our country', study claims
SNP fury as HS2 finds 'no business case' for taking fast train service to Scotland
iJobs Money & Business
£40-50K: Guru Careers: We are seeking an experienced Software / C# Developer w...
£45,000 - £55,000: Neil Pavier: Are you looking for your next opportunity for ...
£45,000 - £55,000: Sheridan Maine: Are you a newly qualified ACA/ACCA/ACMA qua...
£50,000 - £60,000: Laura Norton: Are you looking for an opportunity within a w...