Slower growth might lead Fed to delay pullback
WASHINGTON — The U.S. economy may not be strong enough for the Federal Reserve to slow its bond purchases later this year.
That’s the takeaway from economists after the government cut its estimate Wednesday of growth in the JanuaryMarch quarter to a 1.8 percent annual rate, sharply below its previous estimate of a 2.4 percent rate. The main reason: Consumers spent less than previously thought.
Most economists think growth will remain low as consumers and businesses continue to adjust to federal spending cuts and higher taxes. Growth is expected to reach an annual rate of only about 2 percent in the April-June quarter. Even if the economy improves slightly, it would be hard to meet the Fed’s forecast of 2.3 percent to 2.6 percent growth for 2013.
Chairman Ben Bernanke rattled investors last week when he said the Fed will likely slow its bondbuying this year if the economy continues to strengthen. The bond purchases have helped keep interest rates low. Bernanke added that if the economy weakens, the Fed won’t hesitate to delay its pullback or even step up its bond purchases again.
Jennifer Lee, senior economist at BMO Capital Markets, said that if the April-June quarter proves tepid, the Fed will be looking at three straight quarters of subpar growth.
“The Fed won’t taper (its bond purchases) under these conditions,” Lee said. “They need convincing signs of a pickup.”
Joel Naroff, chief economist at Naroff Economic Advisers, said he suspects the Fed will wait until next year to slow its bond buying. Like most economists, Naroff thinks growth will pick up in the OctoberDecember quarter and