- The Washington Times - Wednesday, April 30, 2008

The Federal Reserve this afternoon nudged interest rates a quarter-point lower and signaled that it will suspend its rate-cutting campaign, only hours after the government reported that economic growth continued to inch ahead in the first three months of the year.

The central bank has been slashing interest rates since August out of concern that the economy could be falling into a recession. Economists said a Commerce Department report showing that the economy posted 0.6 percent growth for a second straight quarter was consistent with either a shallow recession or sharp economic slowdown which could continue through the first half of the year.

But while the outlook for growth remains clouded, the Fed indicated that it is now equally concerned about a flare-up in inflation to over 4 percent this year — a worry that may prevent further rate cuts unless the economy significantly worsens.

Consumers led the slowdown in growth in the first quarter, cutting back on spending on everything but necessary services like heating their homes during the winter quarter. Consumer spending posted an anemic growth rate of 1 percent, down from 2.3 percent in the fourth quarter.

Without the small increase in consumer spending as well as an unexpected buildup of stocks at retailers who were caught unprepared for the consumer pullback, the economy likely would have shrunk during the quarter, economists said.

While a recession is commonly defined as two quarters of contraction in the economy, economists said the slight increase in growth seen in the last two quarters does not preclude the likelihood that the economy is in a shallow recession.

Video:GM posts $3.3B loss

  • Fishwrap Blog:Pain at the pump? Share your comments

    Officially, recessions are determined by an academic committee, the National Bureau of Economic Research in Boston, which gives greater weight to factors like employment and income declines. Both employment and incomes, adjusted for inflation, have been falling since the beginning of the year.

    In the first quarter, the build-up of unsold stocks alone accounted for a 0.8 percent increase in output, the department said. But economists said those inventories will have to be liquidated in the months ahead and will be a drag on growth later this year.

    The housing slump continued to be the biggest drag on the economy, with residential construction falling at a 27 percent rate in the first quarter — the worst performance yet in the sector’s two-year-long recession.

  • LOAD COMMENTS ()

     

    Click to Read More

    Click to Hide