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US: missing the point

Article Abstract:

US economic growth is so strong that inflationary pressures are building up and interest rates will have to be raised to cut growth, according to Morgan Stanley's Stephen Roach. The output gap is at the highest level since 1988 to 1989 and could increase. Slower growth is needed to prevent inflation. Markets are not prepared for interest rates to rise to the levels needed for control of inflation. There could also be a recession from the end of 1998 or 1999, and markets are not prepared for this eventuality.

Prices, Interest rates

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US economy: blind landing

Article Abstract:

The USeconomy grew by an annual 2.8% in 1st qtr 1995 compared with 5.1% for the previous quarter. Itis unclear whether a more rapid rate of growth will resume and there are indicators such asincreased consumer confidence and increase growth in consumer loans which indicate that itmay. This means that interest rates may have to be raised again. The weakness of the US dollarmay also put pressure on inflation. In contrast, retail spending and wage rises aresubdued.

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Early days

Article Abstract:

There is a debate as to whether US interest rates will rise further after Feb 1995. Some economists expect an additional rise of 0.5% an that this will represent the peak of the cycle. Flat retail sales and restrained growth of wages are used to back this argument. Pessimists see further rate rises and argue that this is necessary to slow economic growth. Pessimists are also concerned over the impact of rising producer price inflation on retail prices.

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