The US Federal Reserve has begun to express concerns about the pace of expansion, and Wall Street is concerned that it will increase interest rates in reaction. Though it has not increased rates for more than two years,the minutes of the last Fed meeting showed that some members were leaning towards a rise.
The figures for gross domestic product for the January to March quarter were well up from the advance estimate of 4.2 per cent. Part of the explanation for the surge was a rise in stocks, without which GDP would still have expanded by 3.4 per cent. Consumer spending is buoyant. Exports fell, while imports surged.
Economists expect growth for the year as a whole to slow, to about 2.3 per cent. But the big question for the markets is how soon the economy slows. If it does not decelerate to closer to this level, the Fed may feel it has to reappraise its stance. It will have to balance this against the international impact of a rate rise at a time when economies around the world are suffering from the impact of the Asian crisis.
Further evidence of rapid growth came with figures showing a 2.6 per cent increase in orders for durable goods in April, led by a strong showing for aircraft orders. This was the strongest rise for five months. Excluding transport goods, orders were still up by 0.7 per cent.
Wall Street displayed scant reaction to the figures, with the Dow Jones Industrial Average edging higher by 17.94 to 8,854.51 at noon. Traders were more concerned with the return of momentum after he dip earlier this week.Reuse content