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Fed shows confidence in US recovery as GDP growth exceeds expectations

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The US Federal Reserve ending its monthly bond purchases as planned is a vote of confidence in the US economy, says Ben Brettell, Senior Economist, Hargreaves Lansdown…

The US Federal Reserve last night demonstrated its confidence that the US economy remains on track by ending its monthly bond purchases as planned.
 
This confidence was borne out in today’s GDP figures, which showed the US economy expanding at a faster-than-expected annualised pace of 3.5% in the third quarter. This is slower than the 4.6% recorded in Q2, but that figure represented a rebound from the unusually harsh winter which disrupted the economy in Q1.
 
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 3.0% 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.
  
The end of QE in the States (for now at least) seems an opportune time to appraise its effectiveness. The jury is still out on the long-term impact, and will be for some time, but it seems certain that the US and UK economies are better off today than they would have been in its absence.
 
The Bank of England and US Federal Reserve deserve credit for acting swiftly and forcefully in the face of imminent disaster. This is in stark contrast to the ECB, which despite Mario Draghi’s strong rhetoric, has been consistently behind the curve. It is no coincidence that of the three economies, it is the euro zone which is still grappling with near-zero growth and the threat of deflation.
 
It is worth noting that the Fed will continue to reinvest the proceeds of maturing bonds, so while there will be no new stimulus, its enlarged balance sheet will be maintained for the time being.

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