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US Central Bank Boosts Economic Forecast

  • Michael Bowman

The US central bank says the American economy will grow faster and create more jobs than had been thought a few months ago. The Federal Reserve released its latest economic projections Wednesday.

Federal Reserve officials appear slightly more optimistic about the strength of the U.S. economic recovery from the deepest and longest recession of the post-World War II era. In a new forecast, the Fed says the U.S. economy is expected to grow between 3.2 and 3.7 percent this year. That is up from a January estimate of 2.8 to 3.5-percent growth.

More-robust economic expansion should help trim America's stubbornly-high jobless rate. In January, the central bank indicated unemployment would remain at 9.5 percent or higher at year's end. Now, the Fed says it could dip as low as 9.1 percent. The jobless rate currently stands at 9.9 percent.

One constant at the Fed is an expectation that US inflation will remain low. A tame inflation rate would allow the central bank to keep interest rates at record-low levels to stimulate economic growth. Also on Wednesday, the Labor Department reported that consumer prices fell in April by 0.1 percent, the first monthly decline in more than a year. Over the last 12 months, core inflation has risen just 0.9 percent, the smallest yearly increase in more than four decades.

Former Federal Reserve Governor Robert Heller echoed the Fed's inflation assessment on Bloomberg Television:

"Inflation will remain subdued," said Robert Heller. "Let us not forget that the housing sector is still very much ailing, and it has a very large percentage weight in the CPI [U.S. Consumer Price Index] - over 25 percent of the CPI is housing. So that will hold the actual inflation numbers down for quite some time to come."

On a more somber note, a private association of U.S. mortgage bankers reported that more than 10 percent of homeowners failed to make a mortgage payment in the first three months of the year - a record-high proportion.

It was a rash of home mortgage defaults that helped trigger the 2008 financial meltdown and accelerated America's plunge into recession. Many economists see a recovery of the U.S. housing industry as an essential ingredient for a sustained and robust economic recovery.