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Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Knighty Tin who wrote (9608)	7/20/2004 3:51:02 PM
From: mishedlo	Read Replies (2) \| Respond to of 116555

Fed sees better growth, less inflation Tuesday, July 20, 2004 7:26:26 PM [does anyone believe anything in here? If so what? what are the dumbest forecasts in here, if any? mish] WASHINGTON (AFX) -- The U.S. economy is strong and inflation is largely under control, the Federal Reserve said Tuesday in its semiannual report on the economy Growth in the second half of the year is likely to be higher than in the first half, while inflation should drift lower, according to the forecast "Although some of the recent data have been on the soft side, the available information on the outlook for the U.S. economy is, on balance, positive," the Fed said. "The prospects also seem favorable for inflation to remain contained in the period ahead," the report said At an appearance at the Senate Banking Committee, Fed Chairman Alan Greenspan devoted most of his accompanying testimony to persuading markets that borrowers and lenders alike are well prepared for the inevitable-but-measured rise in interest rates In its official economic forecast, the Federal Open Market Committee said the U.S. economy will likely grow at a 4.5 to 4.75 percent annual rate in 2004. The economy has grown at a little less than a 4 percent annual rate so far in 2004 Core inflation rates are likely to remain subdued for 2004, rising between 1.75 and 2 percent. Core inflation has been rising at "a little above" 2 percent in the first half of the year, the FOMC said Unemployment should drift lower to 5.25 to 5.5 percent by the end of the year from the current 5.6 percent, the forecast said In 2005, economic growth will likely slow to a still-healthy 3.5 to 4 percent rate, with core inflation remaining below the key 2 percent level at 1.5 to 2 percent The jobless rate should fall to 5 to 5.25 percent in 2005, the Fed said The forecast for 2004 represents a slight downshifting in growth from the Fed's previous forecast in February of 4.5 percent to 5 percent. For the first time, the FOMC is forecasting the core inflation rate, not the broader price index that includes food and energy costs. The core personal consumption expenditure price index "is better as an indicator of underlying inflation trends than is the overall PCE price measure," the FOMC explained A brightening outlook The economic fundamentals are strong, the committee said. "Households are enjoying a generally improving job market, rising real incomes, and greater wealth, all of which are providing them with the confidence and wherewithal to spend," the FOMC said "In the business sector, capital spending apparently is continuing to increase briskly, bolstered by expectations of strong sales as well as by booming profits and supportive financial conditions," the committee said. "Moreover, inventories appear to be lean relative to sales." "The brightening outlook for economic activity abroad" should boost U.S. exports The committee tried to be reassuring on inflation, repeating a sentence from its June 30 statement that recent acceleration in prices was, in part, due to "transitory factors." The upward movement in energy and commodity prices was likely to moderate Furthermore, the committee said economic slack in the economy is still putting downward pressure on prices. Productivity gains are continuing. Workers are likely to capture a greater share of the fruits of those productivity gains, but it will come at the expense of profits rather than being passed on to consumers as stiff competition forces companies to absorb the higher labor costs, the FOMC said The central bank promised to monitor workers' gains carefully. "If increases in those costs were to develop any upward momentum, the well-behaved nature of inflation in recent years could be jeopardized." This story was supplied by CBSMarketWatch. For further information see www.cbsmarketwatch.com