Reading the runes in Washington and Frankfurt

Sun Jul 28, 2013 2:09pm EDT
 
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By Alan Wheatley, Global Economics Correspondent

LONDON (Reuters) - Three of the world's leading central banks are likely to reaffirm their determination this week to keep a lid on interest rates for a long time to come, despite signs that their economies are slowly on the mend.

The Federal Reserve, the European Central Bank and the Bank of England are all expected to repeat or refine their "forward guidance" that borrowing costs will remain extraordinarily low as long as growth is sub-par and inflation is not a threat.

Fed Chairman Ben Bernanke's news conference after the U.S. central bank's policy meeting will come in for particular scrutiny for fresh clues over the timetable for phasing-out the Fed's bond buying, running at $85 billion a month.

Bernanke has said the Fed is likely to begin reducing its purchases later this year - markets have penciled in a September start - and end them completely in mid-2014, depending on the economic news flow.

No figures are more important than the monthly employment data and Friday's report is likely to show the economy added 185,000 jobs in July, just shy of the 200,000 average of the past nine months, according to economists polled by Reuters.

Joseph Carson, chief economist with AllianceBernstein in New York, said that pace should be at least sustained in coming months, as job growth in services was being reinforced by strength in construction and an improvement in manufacturing.

Second-quarter GDP figures on Wednesday are forecast to show the economy expanded at an annual rate of 1.0 percent, just half as fast as in the first quarter, but Carson expects an acceleration to between 3.0 and 3.25 percent in the second half of this year and to 3.5 percent in 2014.

Although the recovery has just marked the end of its fourth year, it looks in many respects as though it is just getting under way, Carson said.   Continued...

 
The Euro sculpture is pictured in front of the headquarters of the European Central Bank (ECB) in Frankfurt, January 17, 2012. REUTERS/Kai Pfaffenbach