orangeleader.com (Orange, Texas)

Local News

March 21, 2013

Fed says it will stick with aggressive stimulus

(Continued)

WASHINGTON —

But O'Sullivan said he thinks the Fed might scale back its bond purchases in the second half of this year if job growth continues to accelerate.

Brian Bethune, an economics professor at Gordon College in Wenham, Mass., said the Fed's first move might be to reduce its monthly bond purchases in the October-December quarter of this year and again in the first quarter of 2014. Reducing the Fed's bond purchases would likely cause interest rates to rise, making loans more expensive, and possibly cause stock prices to fall.

The economy slowed to an annual growth rate of just 0.1 percent in the October-December quarter, a near-stall that was due mainly to temporary factors that have largely faded. Economists think growth has rebounded in the January-March quarter to an annual rate around 2 percent or more. The most recent data support that view.

Americans spent more at retailers in February despite higher Social Security taxes that shrank most workers' paychecks. Manufacturing gained solidly in February. And employers have gone on a four-month hiring spree, adding an average of 205,000 jobs a month. In February, the unemployment rate, though still high, reached its lowest point since December 2008.

One reason for the Fed's reluctance to reduce its stimulus is the history of the past three years. In each of the three, economic prospects looked promising as the year began. Yet in each case, the economy stumbled.

Though the economy has brightened this year, it still faces threats, including across-the-board government spending cuts that took effect March 1 and are expected to trigger furloughs and layoffs.

The Fed's forecasts for the economy are rosier than those issued by the Congressional Budget Office. The CBO has warned that the government spending cuts, along with the Social Security tax increase and higher taxes on top earners, could slow growth by 1.5 percentage points this year, to 1.5 percent.

Text Only
Local News
Hyperlocal Search
Premier Guide
Find a business

Walking Fingers
Maps, Menus, Store hours, Coupons, and more...
Premier Guide