Is the US economy back on track?
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The Federal Reserve is to begin tapering of its economic stimulus programme by a total of $10 billion per month. It was a move that went counter to the predictions of two thirds of analysts and this, combined perhaps, with a sense of relief among investors after months of speculation meant that the Dow Jones finished the day up 292 points.
The tapering will lead to a reduction of the monthly purchases of $40 billion worth of mortgage bonds to $35 billion and the reduction of $45 billion worth of treasury assets to $40 billion.
The Fed pointed to an improvement in the US economy as one of the reasons why, ‘Recent economic indicators have increased our confidence that the job market gains will continue,’ said the outgoing Fed chair Ben Bernanke.
We only need to dip our toe into the recent economic figures to see evidence of this.
The latest non-farm payrolls employment figures showed that the US created 203,000 jobs in November, and this both exceeded expectations and was higher than the previous figure.
According to the Federal Reserve industrial production jumped by 1.1% in November compared to a revised rise of 0.1% in October.
A report from the Commerce Department revealed that retail sales climbed by 0.7% in November from October, which was the biggest gain since June.
Meanwhile, new housing starts hit just over one million in November which was a 30% increase from the same month in 2012.
It’s going to be an interesting first quarter for the incoming Fed chair Janet Yellen, presuming she secures the pre-Christmas US senate vote –the final hoop before she officially lands the top job.
Only in the New Year will we see whether the onset of the end of tapering and the optimism with which the Fed now views the US economic recovery will continue to be backed up by the economic figures.
The Federal Open Market Committee will not sit together again until February, however. In the meantime, will the fear start creeping back in if the economic fundamentals take a downward turn?
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