U.S. economy may need continued support from Fed
A key government report and a statement from the Federal Reserve made clear yesterday that the U.S. economy still needs help.
The economy grew at a lackluster 1.7 percent annual rate in the April-June quarter, the Commerce Department said. That was better than a revised 1.1 percent rate for the first quarter but still far too sluggish to quickly reduce unemployment.
The Fed’s statement suggested it’s too early to signal a pullback in its $85 billion a month in Treasury and mortgage bond purchases. The bond purchases have been intended to keep long-term interest rates down to spur borrowing and spending and invigorate the economy.
In a statement after a policy meeting, Fed policymakers slightly downgraded their assessment of the economy. They also noted that mortgage rates, which have helped drive home sales, have risen from record lows.
And the Fed noted that inflation has remained consistently below its 2 percent target and is still a potential threat to the economy. Continued stimulus by the central bank could lead to higher inflation.
Some economists said they thought the Fed was now less likely to start scaling back its bond buying in September, when many analysts have said it would probably do so.
December may now be a more likely time for the Fed to taper its purchases – if the economy shows consistent gains in the second half of the year.
The Fed expects growth to accelerate later this year. Job gains have been steady, and auto and home sales strong. The economic drag from federal spending cuts that kicked in this year is also expected to ease.
A key indicator will come today, when the Institute for Supply Management issues its U.S. manufacturing index for July. Manufacturing appears to be rebounding after slumping earlier this year.
The Fed will pay even closer attention to the employment report for July, which will be issued tomorrow. It’s expected to show that employers added a solid 183,000 jobs. The unemployment rate is forecast to dip to a still-high 7.5 percent from 7.6 percent.
Despite the economy’s tepid showing in the April-June quarter, it’s now improved for two straight quarters as measured by the growth in the U.S. gross domestic product, or GDP.