US economy surpasses growth expectations during the third quarter

30th October 2014

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Just as the Federal Reserve calls time on its massive quantitative easing (QE) programme, the news has emerged that US economy grew at a faster-than-expected annual rate of 3.5% in the three months to the end of September.

This is slower than the 4.6% recorded in the second quarter but that figure represented a rebound from the unusually harsh winter which disrupted the economy during the first three months of the year.

Last night the Fed demonstrated its confidence that the US economy remains on track by ending its monthly bond purchases as planned. The central bank began injecting money into the economy back in 2008 in bid to stave off the impact of the financial crisis and since then has pumped in some $3.7trn.

Despite the end of QE, which has gradually been tapered back over the past year, the Fed is not expected to raise interest rates for some time yet.

A statement from the central bank pointed to the jobs market, suggesting that while it has improved it is still not back to normal, which is why monetary policy is being kept loose for now.

It said: “The Committee judges that there has been a substantial improvement in the outlook for the labor market since the inception of its current asset purchase program. Moreover, the Committee continues to see sufficient underlying strength in the broader economy to support ongoing progress toward maximum employment in a context of price stability.”

Commenting on the robust economic growth, Ben Brettell, senior economist at Hargreaves Lansdown said: “Today’s number represents a return to a healthy-looking trend. The most recent IMF forecasts suggest the US economy will grow 3.1% next year and 3% in 2016, and these could be revised further upwards in the coming months. The Fed’s statement yesterday struck a hawkish tone, leading to a sharp strengthening of the dollar on speculation that interest rates could rise by September 2015.”

Sheridan Admans, investment research manager at The Share Centre  added: “These figures give additional evidence of a sustaining recovery in the world’s largest economy and show consumer confidence is finding support from fundamentals. We believe the US continues to provide a source of good returns ahead for investors.”

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