U.S. in modest recovery; Fed to cut back on QE next month: Reuters poll

Wed Aug 14, 2013 11:35am EDT
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By Ross Finley

(Reuters) - The U.S. economy is on a modest, yet sturdy recovery path that will bring down the jobless rate to 7 percent by the middle of 2014, leaving the Federal Reserve on track to ease off on its stimulus program next month, a Reuters poll of economists found.

While traders in financial markets have been fretting over when the Fed will pare back its $85 billion in monthly bond purchases, forecasters have remained convinced over past months that September is the time.

That is based partly on evidence that economic growth is accelerating modestly, and the narrowing spread of forecasts for the coming quarters in the latest Reuters poll reflects that conviction.

Jobs data have been the main disappointment, however, and the latest Reuters poll shows no significant improvement in expectations for hiring.

Indeed, anecdotal evidence shows that many companies have been doing whatever they can with existing staff and have been reluctant to re-hire aggressively until they have irrefutable evidence that the Great Recession is in the distant past.

But the existing steady pace of hiring will be enough - provided looming budget fights between Democrats and Republicans this autumn don't bring the government to a standstill - to allow the Fed to gradually taper off its extraordinary monetary easing.

"There is a material downside risk that political battles will lead to undue fiscal tightening which could depress the economy directly through reduced spending and indirectly through damaged confidence," said Bill Cheney, chief economist at John Hancock Asset Management.

"Barring such an outcome, I believe that the U.S. economy is ready to shake off its malaise and speed up quite rapidly."   Continued...

A sign is shown in the window of a retail store in San Francisco, California in this file photo taken May 13, 2013. REUTERS/Robert Galbraith/Files