An upward revision in GDP has fanned expectations the Federal Reserve will after all raise interest rates in 2015. Photograph: Karen Bleier/AFP/Getty Images
The US economy grew faster than previously thought in the second quarter of the year, according to new figures that have fanned expectations that the Federal Reserve will raise interest rates before the end of 2015.
Government data suggested the world’s biggest economy grew at an annual pace of 3.9% between April and June, exceeding economists’ expectations for the US GDP estimate to stay unchanged at 3.7%. It marked an even stronger bounceback from the sluggish 0.6% growth recorded in the opening months of 2015 when an especially harsh winter hit economic activity.
The dollar strengthened against other currencies and US stock markets rallied after the upward revision to GDP, which the Commerce Department said was largely driven by consumer spending being stronger than previously thought.
Economists said the figures left the door open for the US central bank to raise interest rates from their current record low of close to zero at policy meetings in October or December.
“Yellen has confirmed a hike can still occur in 2015, so speculation over a December move is currently rife in the market – with short-term dollar bulls hoping for an October move,” said Alex Lydall, senior trader at foreign exchange business Foenix Partners.
“With the exception of inflation, economic indicators are still solid for the domestic economy in the US, so the pertinent question remains: will the Fed risk looking irresponsible and delay rate hikes into 2016, or will they take the plunge this year, with perhaps a more cautious hike than the expected 0.25%? The jury is still out.”
The Federal Reserve held off raising borrowing costs at its policy meeting last week as it cited volatility in the global economy. But Yellen indicated in a speech on Thursday this week that there was a still a good chance the first hike for almost a decade could come before the year is out. She said US economic prospects “generally appear solid” and it was best not to wait too long to tighten policy, which has been ultra-loose since the global financial crisis.
However, some experts noted that GDP figures did not give the most up-to-date picture of the economy’s performance and that more timely economic indicators painted a gloomier picture.
The revision had “little bearing on US policy”, said Chris Williamson, chief economist at economic data company Markit, which tracks business activity in the US and other economies.
“It does little to change the story that the economy rebounded strongly in the spring after the weak patch seen earlier in the year. More important are the forward-looking indicators, which include a number of red flag warnings that growth is slowing amid headwinds of the strong dollar, slumping oil prices, financial market volatility and emerging market jitters,” he added.
“The more up-to-date survey data play into the hands of dovish policymakers and will reduce the odds of interest rates rising any time soon.”
Source: The Guardian