LONDON (AFX) - Treasury Secretary Paul O'Neill said US economic growth will accelerate to 1.5-2.0 pct at the end of this year, and he sees no barriers to a recovery to faster growth.
"We will experience a measurably higher rate of real growth in the fourth quarter, probably something in the range of 1.5-2.0 pct real growth going out the end of the year," O'Neill said in a press briefing.
He said the 275 basis points of interest rate cuts engineered by the Federal Reserve will take time to have an impact on the economy. O'Neill argued that the monetary easing and 40 bln usd in tax rebates to be distributed in coming months will help the economy achieve the faster pace of growth by the year's end and he added that corporate margins and earnings should improve as overall demand in the economy picks up.
US GDP rose just 1.1 pct in the first quarter, and is expected to show a 0.9 pct rise in the second quarter.
Asked whether the sharp pace of Fed easing, combined with the fiscal stimulus of tax cuts, might stoke higher inflation, O'Neill said: "I don't see that."
He said US openness to trade and exposure to foreign competition "has done a wonderful job of keeping inflation low."
Separately, O'Neill reiterated the Bush administration's commitment to a strong dollar policy, saying: "There is no change; there is no intent to change."
Foreign exchange markets last week questioned this commitment, following two occasions on which President George Bush said markets should determine the value of the dollar.
Asked about damage to US industry from the strong dollar, O'Neill said effectively managed companies are able to reduce foreign exchange risk through hedging.
He added that companies should also balance their sourcing of inputs with their sales, so that imbalances do not develop in buying input products in one currency, but selling the final goods in another.
O'Neill also said he does not think there are any barriers, such as slowing economies outside the US, that could present a challenge to a US recovery.
Pressed whether a rise in energy prices could present a problem, he responded: "I don't see any evidence of ... a sharp rise in energy prices."
O'Neill also said he was optimistic about growth next year, noting that many private sector economists are forecasting over 3 pct real growth next year, which he added "is not too bad."
He rejected the view in some quarters that the US is now in a recession, saying this view amounted to calling an "apple a plum." He noted the positive 1.1 pct GDP growth in the first quarter, and referred to the standard definition of a recession: two consecutive quarters of GDP contraction.
He reiterated that he sees US GDP growth potential at around 3 pct annually, or "maybe even 3.5 pct, and maybe even better than that." The Treasury Secretary said the real limit to economic growth is the pace of productivity growth achieved by the best-performing companies. The gap between leading companies and the majority is such that there remains "enormous opportunity" for faster growth, he said.