Global economy on a firmer footing awaiting US Federal Reserve

Aug 26 2013, 09:39 IST
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The US economy is far from firing on all cylinders. (Reuters) The US economy is far from firing on all cylinders. (Reuters)
SummaryMore bricks in recovery wall will likely slot into place when Fed start unwinding its stimulus.

More bricks in the global recovery wall are likely to slot into place in a week that could also yield more clues as to when the Federal Reserve will start unwinding its exceptional monetary stimulus.

Updated gross domestic product figures are usually brushed aside as backward-looking.

But with the timetable for Fed 'tapering' dependent on the flow of data, any upward revision to U.S. second-quarter GDP growth can only strengthen the hand of those who expect the central bank to move as early as its September 17/18 policy meeting.

Economists polled by Reuters reckon GDP expanded at a 2.2 percent clip between April and June, up from an initial estimate of 1.7 percent thanks to a bigger contribution from net exports.

The U.S. economy is far from firing on all cylinders. But last week home sales for July jumped to a three-year high and the four-week moving average for new jobless claims fell to the lowest level in nearly six years.

Sam Bullard, an economist with Wells Fargo in Charlotte, North Carolina, said he still thought, after the minutes of July's policy-making Federal Open Market Committee (FOMC), that Fed Chairman Ben Bernanke would start to ease off next month.

"At least on the economic data front, the numbers are gradually improving and the plan that Bernanke laid out at the June FOMC meeting for potential tapering in the second half of this year still looks as though it's on pace. We're still in that September camp," Bullard said.


To be sure, the Fed has to take account of plenty of headwinds.

Bullard cited the risk of a U.S. government shutdown due to wrangling over next year's budget. Congress also needs to raise the federal debt ceiling by November, raising the spectre of a repeat of the brinkmanship that rocked markets two years ago.

"If the Fed goes for September, they have to have some faith that there'll be some resolution to these federal fiscal issues and that they won't throw their economic growth projections off course," Bullard said. "It's not a slam dunk."

Figures this week are also likely to show U.S. inflation according to the Fed's preferred measure, the core deflator for personal consumption expenditure, remained stuck last month near June's uncomfortably low annual rate of 1.2 percent.

And financial conditions have tightened since the Fed met in July, with mortgage rates yanked higher by rising bond yields.

But Jerry Webman, chief economist with OppenheimerFunds, said the Fed had

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