Fed Expected to Increase Interest Rate Amidst Economic Growth

mark tuminello economic growthA recent survey of economists has shown that there is a general confidence that the United States economy is on a solid, self-sustaining path. Many expect the Federal Reserve to raise interest rates as early as the third quarter of 2015. This information comes out as growth estimates are not being met and a disappointing first quarter of 2014, yet almost all economists of the 48 surveyed by Reuters thought the recovery to be durable as job growth continues to rise.

Millan Mulraine of TD Securities noted that the ‘successful transition to self-sustaining growth will remove one layer of uncertainty and provide the necessary condition for the Fed to consider raising rates.

Economists predict that the economy will grow over 2% this year, but not as high as 2.5%, a popular early prediction. 2015 could experience growth up to 3%. The lowering of this year’s predictions is a result of the poor performance in this first quarter, which was hampered by a particularly cold winter. We can expect a high rebound rate, but altogether the first half of 2014 will come to growth of just 1%.

The good fortune is modest, to say the least, but faith in recovery is good news nonetheless. Last month job growth finally recouped all the jobs lost during the recession, a major milestone in the recovery. The pace of job recovery is expected to continue by an average of nearly 250k per month. Unemployment, with this kind of growth, may fall below 6% by 2015.

More than the numbers, this survey marks a changing attitude, a perception shift from just a year or two ago. Consumers seem to be more ready to spend, personal donations to charitable organizations are up, and business is adding jobs and preparing for growth. This growth on all fronts really does need to continue in order to maintain economic growth.

A negative coming out of the survey is wage growth, which isn’t expected to improve much in the coming year.

When the Fed raises the benchmark interest rate in late 2015, economists think it will be a raise of half a percent, which would more than double current rates. The Fed has already scaled back the amount of bond purchases. All of this could be sped up or more aggressive depending on how numbers change month to month.

from Mark Tuminello http://ift.tt/1oGpBgo – latest post by Mark Tuminello

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