Fed likely to end bond buying as US seen to expand faster
Print Edition
WITH the pace of US economic growth seen speeding up later this year and next, many business economists expect the Federal Reserve to end its bond buying this fall or even earlier.
The consensus of the 48 economists surveyed by the National Association for Business Economics 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 year’s end. NABE’s report, released yesterday, covered a survey period from February 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 December survey. Those surveyed expect consumer spending to now increase 2.6 percent in 2014, not 2.4 percent, as hourly wage growth is forecast to rise faster than inflation. GDP may grow an average 3.1 percent in 2015.
“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 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 2015.
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 economic growth. Now that the economy is slowly but 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.
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