US standstill lifts hopes of rate cut
Friday 28 July 1995
The bond market leapt on yesterday's news, with a majority of analysts convinced that the Federal Reserve will make another small reduction in interest rates before the autumn. Brian Fabbri, economist at Paribas in New York, said: ''Mr Greenspan will be holding to his view that the economy is currently growing somewhat below potential.''
The Fed cut its key rate by a quarter point on 6 July. In testimony to the US Congress last week, the Fed Chairman said the maximum risk of recession had passed, and the economy was poised to resume moderate growth with low inflation.
Orders fell a fraction in June, and the May increase was revised down. There was a 1.4 per cent drop in defence-related orders. Non-defence orders were flat, with lower demand for aircraft parts - likely to be reversed next month - offset by higher orders for other capital goods. However, the trend in non-defence, non-aircraft orders has flattened in recent months. The second-quarter total was 3.3 per cent lower than the previous quarter.
Mark Cliffe, international economist at HSBC Markets, said: ''These figures suggest the economy will no longer be driven ahead by rapid investment, but they do not point to recession.''
This week's jobless claims also echoed the economic slowdown. The one- week fall in the number of new claims was the biggest for a year, after the inflation of last week's number by layoffs in the car industry. But the less volatile four-week average increased again to reach 389,000.
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