Financial and Economic Brief - May 2, 2017by © Liberty Publishing, Inc.
Sustained 3% Growth Not Likely
According to former Federal Reserve Chairman Ben Bernanke, the U.S. economy is doing well but may not meet the ambitious growth expectations of President Donald Trump. Asking if he thought growth could hit 3 percent or better, the former two-term central bank leader told CNBC, “On a sustained basis, it's certainly possible, but not likely.” Bernanke attributed the slow growth to changing global economic conditions. “We're not in the same world we were in 20, 30 years ago... In particular, our workforce is growing much more slowly, so… the number of people available to work is not consistent with 4 percent growth.”
Factory Growth Slows, Inflation Measure Drops
Ahead of the Fed’s policy meeting this week, several “weak” reports came in: U.S. factory activity slowed in April to a reading of 54.8, consumer spending was flat in March and a key inflation measure dropped, but even with the slower growth economists still expect an interest rate increase in June. The Fed raised its overnight interest rate by a quarter of a percentage point in March and has predicted two more hikes this year. “We don't expect that will prevent the Fed from hiking interest rates again at the June meeting, at least not as long as employment growth rebounds in April and May,” said Paul Ashworth, chief U.S. economist at Capital Economics.
U.K. Growth Falls to 0.3%
According to the Office of National Statistics, there was slower growth in the U.K. in Q1 because of weaker retail sales and lower spending on key consumer items. In fact, the quarter on quarter growth rate was the worst in a year, and a slowdown from the 0.7% expansion posted in Q4 2016. The cause of consumer’s uneasiness is rising prices, a side effect of the fall of the pound following the June referendum. The pound was trading around $1.29 on Friday, 14% lower than on the day of the referendum. The slower expansion will make it more difficult for Britain to achieve the 2% growth rate for 2017 that has been predicted.