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Sat, Mar 09, 2002 - Page 21 News List

US economy is recovering, Fed chairman says

ON THE MEND Analysts say interest-rate hikes are in the offing later this year as the world's largest economy continues to pull out of its recession



The US economy is rebounding from a recession that began a year ago, US Federal Reserve Chairman Alan Greenspan said in a more positive assessment than he gave just one week earlier.

"Recent evidence increasingly suggests that an economic expansion is already well under way, although an array of influences unique to this business cycle seems likely to moderate its speed," Greenspan said to the Senate Banking Committee.

Greenspan told a House committee last week the economy was "close to" recovering from the first recession in a decade.

Reports since then show manufacturing ended an 18-month slump last month, and consumers flocked to Wal-Mart Stores Inc and Target Corp, pacing the biggest gain in retail sales in almost two years. Worker productivity surged 5.2 percent in the fourth quarter, the biggest gain since the middle of 2000.

Treasury note yields soared as investors took the testimony as a sign Fed policy makers will start raising interest rates by midyear to keep the economy from overheating. The 4 7/8 percent note maturing in February 2012 fell 1 11/32 point, pushing up its yield 18 basis points to 5.23 percent. A basis point is 0.01 percentage points.

Consumer borrowing rose by US$12.9 billion in January, compared with a US$1.8 billion increase in December, the Fed reported separately.

US retailers' sales increased 6.2 percent in February, based on chain store data compiled by the bank of Tokyo-Mitsubishi Ltd. The monthly gain was the biggest in almost two years and received its biggest lift from a 10 percent sales jump at Wal-Mart.

Initial claims for unemployment insurance fell last week to 376,000 from 381,000 a week earlier, the Labor Department reported separately. Claims have been below 400,000 since the year began, the longest stretch since a five-year period ending in April 2001, when the recession was a month old.

The policy-setting Open Market Committee lowered the target rate for overnight loans between banks 11 times last year, and then left it at a 40-year low of 1.75 percent at the Jan. 30 meeting. At some point central bankers are likely to raise rates to keep inflation in check, Fed Bank of Philadelphia President Anthony Santomero said yesterday.

"The reality is they're trying to manage the transition from being an easing Fed to a Fed raising rates," said Diane Swonk, director of economics at Bank One Corp.

Central bankers meet again March 19.

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