US boom piles on pressure for a hike
Thursday 23 December 1999
US gross domestic product surged 5.7 per cent in the third quarter of the year, a revision from the previous estimate of 5.5 per cent - a figure already seen as a potential trigger of higher inflation.
The revision means the economy is growing at its fastest rate since the 5.9 per cent recorded in the last quarter of 1998. Consumer spending was revised up to 4.9 per cent from 4.6 per cent.
The data came a day after the Federal Reserve signalled it was prepared to raise rates early in the New Year, most likely at its first meeting in February. Christopher Low, chief economist at First Tennessee Capital Markets, said: "The upward revision to consumption was a reminder of what is driving this ... boom, and what has to change to satisfy the Fed."
In its statement on Tuesday accompanying its decision to keep rates on hold at 5.5 per cent, the Fed warned that even the remarkable gains in worker productivity might not be enough to keep inflation under control.
Meanwhile there were fresh signs that rates in the European economic zone might also have to rise. German import prices rose at their highest rate in almost a decade on the back of strong oil prices while inflation in three German states rose. This indicates that figures for German inflation in December will show a rise from November's 1.0 per cent. Preliminary figures are published tomorrow.
Harald Finger, an economist at Deutsche Bank, said the data pointed to rising inflation and GDP. "That's going to put the European Central Bank on guard. We expect an interest rate hike of 25 basis points in the spring of 2000."
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