Fed looks past a world in turmoil, confident in U.S. recovery

Wed Jan 7, 2015 8:37pm EST
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By Howard Schneider

WASHINGTON (Reuters) - U.S. central bankers have looked beyond a global deflation threat, fear of energy-sector bond defaults, and a surge of oil patch layoffs to reach what appears to be a firm conclusion: the U.S. recovery is here to stay.

New trade data released on Wednesday and signs of ever-stronger consumer spending confirmed the United States remains the bright spot in a global economy plagued by uncertainty.

The trade deficit shrank in November to less than $40 billion, providing a boost to growth as Americans spent less on imported oil.

Meanwhile, the first corporate reports from the Christmas season showed at least some of that money trickling into stores as J.C. Penney Co Inc. (JCP.N: Quote) said same-store sales rose 3.7 percent in November and December, pushing the company's stock up nearly 20 percent.

At its December policy-setting meeting, according to minutes released on Wednesday, the Federal Reserve took close stock of plunging world oil prices and turmoil in Europe and decided that those negative trends would not undo that underlying strength.

"Several participants ... suggested that the real economy may end up showing more momentum than anticipated, while a few others thought that the boost to domestic spending coming from lower energy prices could turn out to be quite large."

The minutes set the stage for what could be a key economic theme this year: how the global system will react as Fed policy diverges from that of other major central banks.

The European Central Bank and the Bank of Japan are expected to further loosen monetary conditions in coming weeks or months, while the luster has fallen from emerging markets that had been attracting record levels of investment in recent years.   Continued...

An eagle tops the U.S. Federal Reserve building's facade in Washington, July 31, 2013. REUTERS/Jonathan Ernst