DATA REVISIONS underscored the likelihood of strong third-quarter growth in the US yesterday, as a hawkish Federal Reserve official raised the possibility of cutting short its planned purchases of mortgage-related securities.
Jeffrey Lacker, president of the Richmond Fed, said: “I will be evaluating carefully whether we need or want the additional stimulus that purchasing the full amount authorised under our agency mortgage-backed securities programme would provide.”
The Fed is midway through a programme to purchase up to $1,450 billion (€1,020 billion) in mortgage-backed securities and debt issued by Fannie Mae and Freddie Mac. This programme is the centrepiece of the Fed’s efforts to provide additional stimulus to the economy with interest rates stuck at virtually zero.
Mr Lacker – who was sceptical that inflation would fall much from current levels in spite of high unemployment and spare capacity in the economy – said at some point the Fed would reach a tipping point at which these purchases would provide a stronger boost to spending than at present.
Mr Lacker’s remarks underscore the degree to which some officials are becoming uneasy as growth resumes against a backdrop of inflation that has not fallen as fast as expected, given high unemployment. Meanwhile, revisions to second-quarter data showed final demand was stronger than earlier reported and inventory liquidation more rapid, setting the stage for a solid rebound in the current third quarter.
The effect of the revisions was to leave second-quarter growth at an annualised rate of minus 1 per cent, following a 6.4 per cent contraction during the first three months of the year, according to official figures released yesterday. Economists had been expecting a larger decline.
The new data supports the Obama administration’s claim that government spending has helped to cushion the near-term effect of a decline in consumer spending, which fell 1 per cent in the second quarter. Federal government spending meanwhile rose 11 per cent.
Rapidly falling inventories knocked 1.39 percentage points from gross domestic product as companies shed $159.2 billion in stock, following a decline of $113.9 billion in the first quarter.
Record inventory liquidation has been a drag on overall output, but a swing in the inventory cycle should give a powerful fillip to growth in the current quarter.
Separately, the labor department said yesterday the number of workers filing new unemployment claims fell last week to 570,000 while those remaining on jobless benefits dropped to 6.13 million, the lowest level since April. – Copyright The Financial Times Limited 2009
