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US Economy Growing at 3.5 Percent Pace


Figures released Wednesday show that the U.S. economy grew at a solid 3.5 percent pace in the fourth quarter of 2006. VOA's Barry Wood reports the Federal Reserve decides to hold interest rates steady.

Instead of slowing down as some forecasters predicted, the U.S. economy accelerated in the last three months of 2006. In the quarter before that, the economy had expanded by about two percent, rising fears of a slowdown.

But consumer spending picked up in the Christmas buying season as Americans benefited from the declining prices of gasoline. For all of 2006 the U.S. economy grew by 3.4 percent, slightly more than in 2005.

The Federal Reserve, the U.S. central bank, announced Wednesday that short-term interest rates will be held steady at 5.25 percent. Rates have not been changed since June, when the central bank ended a string of 17 quarter-point interest rate rises over a two-year period.

Bob McTeer, the former head of the Federal Reserve Bank of Dallas, says monetary policy has been effective in bringing down inflation. He says there is no reason for the central bank to either reduce or increase interest rates.

"I see no reason for the Fed to do anything," he said. "It should just step back and let the economy run."

Meanwhile, Henry Paulson, the respected New York investment banker who became treasury secretary last July, told a congressional committee that China needs to let the market determine the value of its currency. Paulson said that a major objective of his tenure will be to persuade the Chinese to allow market forces to set the exchange value of the yuan.

Like his predecessors, Paulson said there is no evidence that the Chinese government is deliberately manipulating the exchange rate of the yuan. Since modifying its rigid link to the dollar in 2005, the yuan has risen by six and a half percent against the dollar.

But lawmakers and U.S. manufacturers advocate a much larger increase in order to hold down the heavy inflow of Chinese goods into the U.S. market, and some are considering measures to force China to allow a faster appreciation of the yuan.