Tue, Mar 25, 2014 - Page 15 News List

Economists see US growth pickup this year: survey

RATE RISE?One-third of economists said short-term interest rates could rise this year, but the US Fed chair said they may remain near zero for a considerable time


With the pace of US economic growth forecast to speed up later this year and next, many business economists expect the US Federal Reserve to end its bond purchases this fall or even earlier.

The consensus of the 48 economists surveyed by the US National Association for Business Economics (NABE) is that bad weather cut first-quarter growth to a weak annual rate of 1.9 percent, but that growth could exceed 3 percent by the year’s end. NABE’s report, released yesterday, covered a survey period from Feb. 19 through March 5.

Their forecast for average US economic growth of 2.8 percent this year is better than the 2.5 percent rate they predicted in NABE’s survey in December last year. Those surveyed expect consumer spending to now increase 2.6 percent this year, not 2.4 percent, as hourly-wage growth is forecast to rise faster than inflation. GDP is expected to grow an average 3.1 percent next year.

“Conditions in a variety of areas — including labor, consumer and housing markets — are expected to improve over the next two years, while inflation remains tame,” NABE president Jack Kleinhenz, chief economist of the US National Retail Federation, said in a statement.

Given the stronger growth forecast, 57 percent of the economists surveyed believe the Federal Reserve will end its bond purchases in the fourth quarter, as the central bank has signaled it plans to do. Another quarter think it will happen even before that, though 17 percent think the Fed will keep buying bonds into next year.

The Fed has been buying bonds for the past several years with the aim of driving down long-term interest rates to stimulate spending and US economic growth.

Now that the US economy is steadily improving, it has been tapering those purchases.

At each of its last three policy meetings, including last week’s, the Fed cut bond purchases by US$10 billion to the current pace of US$55 billion a month. There are six meetings left this year.

One-third of respondents said the Fed could even raise short-term interest rates this year, though more than half think it will not happen until next year.

Fed Chair Janet Yellen said on Wednesday last week that with the job market still weak, the central bank intends to keep short-term rates near zero for a “considerable” time and would raise them only gradually.

She said the Fed would not be dictated solely by the unemployment rate, which Yellen feels overstates the health of the US job market and the economy. She also suggested that the Fed could start six months after it halts its monthly bond purchases. That would mean the rate could rise by the middle of next year.

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