Following more encouraging U.S. economic expansion than previously forecast, the Federal Reserve board may take the bold step of hiking interest rates before the end of the year.
The Commerce Department said third-quarter figures have been through a revision process and now say that total economic output (GDP) gained by 2.2 percent, up from the initial 1.6 percent forecast for the quarter.
The first estimate was explained by analysts as a reflection of steep cost-cutting by corporations totaling around $60 billion following the negative current global economic climate. This was after a stellar second quarter to the year, which saw a 4 percent increase in GDP.
After the authorities analyzed new data, they concluded that inventory declines in Q3 had not been as sharp as previously thought, around $20 billion, and the overall figure for growth was adjusted even further than most economists thought.
“I think U.S. retailers have stood firmly behind their businesses even in the face of the current global downturn, and the government has underestimated this kind of confidence,” said Pantheon Macroeconomics head analyst Ian Shepherdson. “The next quarter looks like it will perform well and we are forecasting at least 3 percent GDP growth.”
This sentiment was supported by a report from prominent investment firm CITIC Tokyo International who announced an increase of 15 percent in Japan’s exports to the U.S. compared to the same period a year previous.
America relies heavily on its consumer spending, which contributes over 60 percent to the nation’s economy. In the third quarter spending was good, expanding at 2.9 percent compared to Q2. Corporate expenditure was revised up to 2.5 percent compared to 3.9 percent in the second quarter.
“If all other factors remain stable we should be on for annual growth about the same as 2014, which was 2.3 percent,” said Bank of America senior analyst Brian Payne. “This is a fairly good result considering the recent climate, which has been effected greatly by oil prices and political events.”
The Federal Reserve now need to decide whether the overall economic data is strong enough to push rates off their current ultra-low levels which they have maintained for nearly seven years in an effort to stimulate the economy and drive growth back up to pre-financial crisis levels.
Their final decision may hinge on inflations figures and employment data that is due to be released later this month.
