US Economy Improves; Federal Reserve Expected to Continue Tapering
While some investors hope that the European Central Bank will enhance monetary easing by pumping more funds in the economy, the Federal Reserve is expected to continue monetary tightening. On 29-30 July, the Federal Open Market Committee (FOMC) meets and probably reduce the bond-buying program (quantitative easing) by another chunk of USD $10 billion to USD $25 billion in August. Since the start of 2014 when the Fed bought USD $85 billion worth of bonds per month, the program has been wound down amid an improving US economy.
By November 2014, the bond buying program is expected to end altogether, which (in theory) should lead to higher US interest rates although Fed chief Janet Yellen previously stated that interest rates will remain low for a 'considerable time' after the bond-buying program has ended.
US Economy 2014
After a weak first quarter due to extreme cold winter weather, the US economy has been improving in the second quarter of 2014. The index consisting of the ten leading macroeconomic figures (which provides insight into the country’s economic conditions over the next three to six months) grew 0.3 percent in June 2014. Although this result was below analysts’ expectations (who projected a 0.5 percentage point growth), the May figure was adjusted to +0.7 percent. This index has been positive for the fifth consecutive month, which indicates not only short term US economic expansion but also possible accelerating growth in the second half of this year. Analysts expect that the US economy will grow about three percent (year-on-year) in the second quarter, particularly supported by increased consumer demand. If the US property market and corporate investments will improve then the US economy can accelerate further in the second half of 2014.
Ahead of today's release of the US Q2-2014 GDP growth result and FOMC rate decision, the US dollar was at a six-month peak against major currencies on Wednesday morning (30/07).
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