Sun, Jul 04, 2004 - Page 11 News List

Interest rate hike a sign of strength


The first hike in US interest rates of President George W. Bush's presidency is a sign of the building strength of the economy after three years of recession, terrorism and war.

On Wednesday, the Federal Reserve made a long-awaited move to tighten monetary policy, raising its benchmark interest rate from a 46-year low of 1 percent to 1.25 percent.

With a hangover from the 1990s technology bubble, the US economy slipped into recession in January 2001. It was the same month that that Bush took office and the Fed began the first of 13 consecutive rate cuts to try to kindle the economy amid the terrorist strikes of Sept. 11, 2001.

The recession lasted only nine months, but the economy grew haltingly through 2002, and uncertainty over the war in Iraq suppressed investment into early last year. At one point, the net job losses during the Bush administration's tenure topped 2.5 million.

Finally, in the last four quarters, the US GDP has grown nearly 5 percent, the fastest pace of expansion in 20 years.

The US has now registered 11 straight quarters of GDP growth, and long-lagging hiring has also recovered, with the economy adding 1.5 million jobs in the last year.

Yet the economy remains a liability for Bush.

The campaign of US Senator John Kerry, Bush's major-party challenger for re-election on Nov. 2, has hammered away at the jobs issue.

The net loss under Bush continues to dwindle but remains about 1 million jobs. Kerry's campaign calls it "the worst jobs record of any president who has run for re-election in nearly sixty years."

Bush has touted his policies to cut income taxes on individuals for helping pull the economy out of the doldrums. A White House spokesman hailed this week's Federal Reserve interest rate hike as proof of the economy's vigor.

But an economic advisor to Kerry, the presumptive nominee of the centre-left Democratic Party, said that the low inflation allowing the Fed to raise rates slowly also reflects the poor rate of wage growth for American workers.

Kerry's own economic proposals would create tax credits to encourage small businesses and manufacturers to add workers.

Striking a pose of economic nationalism, he also promises to "enforce" trade agreements to gain a level playing field and "restore" US technology leadership.

He would also eliminate tax advantages for companies that hire workers overseas while cutting most corporate income tax rates.

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