Calmer growth in US eases fears of interest rate rise: Commerce Department declares figures on target and reduces other estimates

THE AMERICAN economy grew less quickly in the second quarter of the year than Wall Street economists had predicted, calming fears that the Federal Reserve will soon raise US interest rates.

Gross domestic product rose at a rate equivalent to 3.7 per cent a year between the first and second quarters, compared with Wall Street forecasts of a rise of 4 per cent or more.

Lewis Alexander, the Commerce Department's chief economist, said this figure was in line with the administration's forecast of 3 per cent growth in the year to the fourth quarter. The Commerce Department also revised down slightly its estimate of growth in the closing months of last year, although the revisions do not significantly change the picture of strong growth last year, which has helped to prompt four rises in US interest rates since February.

Laura Tyson, the White House chief economist, said the second quarter heralded a 'sustainable, investment-led expansion with low inflation'. But economists said that weaker high street spending and rising stocks of unsold goods were probably pointing to lower growth in coming quarters.

Meanwhile, the Securities and Exchange Commission has begun a preliminary inquiry into a former governor at the Federal Reserve, who has stirred accusations of misuse of confidential information on interest rate policy after accurately predicting an increase in interest rates earlier this year.

Wayne Angell served for eight years at the Federal Reserve before leaving in February. He subsequently became chief economist at the Wall Street brokerage Bear Stearns. At an April meeting with Bear Stearns clients Mr Angell gave his analysis of the interest rate environment. This included remarks suggesting that a clear majority of the 12 regional Federal reserve banks were requesting an increase in the discount rate, the interest rate on funds that the Fed lends to commercial banks.

The views of the regional banks were seen as a valuable pointer to the thinking of the Fed on tightening the more important fed funds rate, and a few weeks after Mr Angell's comments the Fed pushed up short-term interest rates a notch.

The Fed has already held its own investigation into Mr Angell's remarks, but its inquiry has not resulted in any action. The new inquiry by the SEC, first reported in yesterday's New York Times, is potentially more serious, as leaking sensitive market information which can then be traded on carries stiff penalties, including prison terms.