US GDP growth may exceed expectations – Fed bank president

16 May 2013 20:14 Source:ICIS News

HOUSTON (ICIS)--US economic growth could exceed expectations of 2.4% because the nation's housing market is recovering and because energy and food prices are low, the president of a Federal Reserve Bank said on Thursday.

Housing is a key part of the economy, and the sector in the US is undergoing a sustained recovery, said Richard Fisher, president of the Federal Reserve Bank of Dallas. He made his comments to the NABE Industry Conference, held by the National Association for Business Economics.

"The housing market is in resurgence, contributing significant impetus to the economy," Fisher said.

Meanwhile, energy prices remain low, allowing US consumers to spend their money on things other than fuel.

Fisher, known as an inflation hawk, said that the measure will remain at or below the Federal Reserve's target of 2%.

"Today, inflation is benign," he said. The unemployment rate is still high; wages are growing slowly; company profit margins are high; crops are abundant;and energy supplies are rising, Fisher said.

Another economic boost is coming from Federal Reserve policy, which has provided the US with an unprecedented amount of monetary stimulus.

Since December 2008, it has held the interest rate at an all-time low of 0-0.25%.

The Federal Reserve also embarked on a programme of buying mortgage-backed securities and longer-term Treasury securities. The bank's portfolio now totals about $3,000bn (€2,300bn), and it could reach $3,500bn-5,000bn by the end of 2014.

Before the recession, the Federal Reserve's balance sheet was less than $900bn, he said.

"The Federal Reserve has undertaken a grand experiment to reignite the economy," he said.

Given the relative strengths of the US economy, Fisher said the nation's GDP could grow faster than the 2.4% rate among private economists.

Fisher did warn about challenges facing the US economy.

Uncertain fiscal policy continues to discourage companies from hiring workers or investing in plant expansions, he said. Instead of investing, companies and banks are sitting on massive amounts of money.

As such, uncertain fiscal policy is compromising the effectiveness of the Federal Reserve's stimulus programmes.

Congress and the president need to provide a clear picture regarding fiscal policy and how they will limit the nation's debt-to-GDP ratio, he said. Until then, uncertainty will loom over such key factors as future tax rates, government purchases and retiree benefits.

With such uncertainty, the Fed cannot restore full employment to the US, Fisher said.

As it is, the US unemployment rate stood at 7.5% in April.

($1 = €0.78)

By Al Greenwood