27 July 2001, 17:29 Slight US GDP rise likely to convince FOMC of need to ease further - analyst
WASHINGTON (AFX) - The smallest rise in US GDP in eight years is
likely to convince the Federal Open Market Committee of the need for
further monetary easing, said Wayne Ayers, chief economist at
FleetBoston Financial.
Fed Chairman Alan "Greenspan has all but guaranteed more easing at
the next (FOMC) meeting, but to the extent he was facing opposition on
the FOMC this should bolster his case," Ayers said.
Many analysts believe a number of FOMC members favor scaling back
any further monetary easing, because of the possible inflationary
impact of the Fed's sharp reductions in the key federal funds rate
earlier this year.
The Commerce Department earlier reported that US GDP rose 0.7 pct
in the second quarter, the smallest gain since Q1 1993, after a revised
1.3 pct rise in the first quarter.
"The good news is that it was a positive number, and we're not in
recession," Ayers said.
However, the small gain shows that the US remains vulnerable to
unforeseen shocks, which could still tip it into a recession, he
cautioned.
"It wouldn't take much to push the economy over the edge," he said.
Barring an internal or external shock to the economy at this point,
Ayers concluded that the second quarter is likely to prove the low
point in the US economic downturn.
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