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US GDP growth prompts Fed interest rate hike speculation

US GDP growth prompts Fed interest rate hike speculation

Strong gross domestic product figures have prompted suggestions that the US Federal Reserve will raise interest rates later this year.

The likelihood of interest rates in the US rising later this year has increased following the release of upbeat economic data.

Figures released by the Commerce Department revealed gross domestic product expanded at 2.3 per cent annual rate, with weak business spending on equipment offset by strong consumer spending.

The 2.3 per cent increase was slightly lower than the 2.6 per cent that had been predicted by analysts, but was still a big enough jump over first quarter figures to trigger speculation an interest rate increase could be introduced by the Federal Reserve.

Deputy chief economist at TD Securities Millan Mulraine was quoted by CityAM as saying the data was "very constructive", adding a rate rise could come "perhaps as early as September".

"Given the supportive domestic economic backdrop, we expect this positive momentum in activity to be sustained in the coming months, providing the Fed with the necessary justification to raise rates this year," he explained.

Interest rates in the US have remained close to zero since the global economic crisis of 2008 and were unchanged at the Fed's latest meeting this week, but there were further signs that a rate rise is coming later in 2015.

Speaking to Congress earlier this month, Fed chairwoman Janet Yellen said the economy is "in a much better state", thanks in part to a prolonged period of low interest rates.

"We’re close to where we want to be, and we now think the economy can not only tolerate but needs higher rates. So there have been headwinds, and we’ve tried to use monetary policy to overcome them," she remarked.

Unemployment in the US is currently at a seven-year low of 5.3 per cent and in the Fed's latest statement on interest rates, it pointed to the "strong" jobs growth that is being seen in the country.

 

 


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