Stronger growth may lead Fed to slow bond purchases
A stronger-than-expected rise in U.S. economic growth last quarter likely will strengthen the hand of Federal Reserve officials who want to slow the Fed’s bond purchases next month.
The economy grew at a 2.5 percent annual rate from April through June, the government estimated Thursday. That was more than twice the growth rate in the first quarter and far above an initial estimate of a 1.7 percent rate for April through June.
The Fed is weighing key measures of the economy’s health before it meets Sept. 17-18 to decide whether to scale back its $85 billion in monthly bond purchases. The Fed’s bond buying has helped keep long-term borrowing rates near record lows. A stronger economy would need less support from the Fed.
Global financial markets have been under pressure over speculation that the Fed will slow its purchases and send interest rates in the United States higher. U.S. rates already have been rising in anticipation of a pullback in Fed bond buying. But the Fed may decide the economy is strengthening enough to withstand higher rates.
Last quarter’s faster growth “should give Fed officials more confidence that the recovery is gathering steam,” said Paul Ashworth, chief U.S. economist at Capital Economics.
Other analysts think the Fed might decide to maintain the pace of its bond buying to help fuel the economy.