How The Fed Shapes Inflation
March 1, 2012 by staff
How The Fed Shapes Inflation, Stronger hiring and higher pay and savings should support solid growth for the economy in coming months.
That was a key message that emerged Wednesday from a report on economic growth in the final three months of 2011. The economy grew at a 3 percent annual rate in the October-December quarter, up from a previous estimate of 2.8 percent, the Commerce Department said.
Most of last quarter’s growth stemmed from a jump in company restocking. That happened because businesses rebuilt inventories that had been depleted last summer. Stockpiling is expected to slow sharply this quarter. And as it slows, growth could, too.
But economists stressed that the fundamental drivers of the economy – incomes, consumer spending and business investment – are rising. They will likely sustain growth this year.
The Federal Reserve said Wednesday that all 12 of its banking districts reported some level of growth in January and the first half of February.
The Fed’s report “was surprisingly more upbeat than we’ve seen lately,” said Jennifer Lee, an economist at BMO Capital Markets. “The employment picture is certainly brighter.”
Overall economic activity increased at a “modest to moderate” pace, the Fed noted in the latest Beige Book, as the Fed report is formally known. That roughly matches the Fed’s assessment of the economy in the final weeks of 2011. And it is slightly better than the ‘slow to moderate” growth cited for October and mid-November.
The pickup in growth reported by each Fed region corresponds with stronger hiring and declining unemployment over the past three months.
Chairman Ben Bernanke told lawmakers Wednesday that the economy has performed better in recent months than the Federal Reserve had expected. If the trend continues, he said the Fed might have to reassess its outlook for a slow recovery.
Investors appeared to take Bernanke’s more optimistic tone as a signal that the Fed is less likely to adopt further steps to boost growth. It could also mean that the Fed could back off its plan to hold its key interest rate near zero until late 2014.
Analysts said Bernanke’s speech was notable for what it didn’t include: any mention of a new round of government bond-buying.
Speaking at a hearing of the House Financial Services Committee, Bernanke cautioned that the Fed doesn’t expect the sharp drops in unemployment to continue this year and it plans to stick with its policy on interest rates. Still, he said the Fed’s late-2014 target for any increase in interest rates is tied to the economy’s health and the Fed might have to adjust its target if the economic outlook improves.
Please feel free to send if you have any questions regarding this post , you can contact on
Disclaimer: The views expressed on this site are that of the authors and not necessarily that of U.S.S.POST.