Tags: Fed | Kohn | economy | growth

Former Fed Governor Kohn: Economy Looks Good for 2015, But …

By    |   Tuesday, 23 December 2014 09:08 AM

The economy has exhibited strength this year, growing at an average annualized rate of 5 percent in the third quarter.

That momentum will likely carry over into next year, "providing a solid base for sustained good growth and a pickup in underlying inflation," says former Federal Reserve Vice Chairman Donald Kohn, now a senior fellow at the Brookings Institution.

The plunge in oil prices will give the consumer sector even more punch, he writes on Brookings' website.

"If that's all we anticipated, the Fed could exit from . . . near zero interest rates . . . readily in 2015 while the economy continued to progress toward the Fed's two goals in labor markets and inflation," Kohn notes.

"There are however, some clouds on the horizon that raise doubt about whether conditions will be right for the Fed to be able to lift its policy rate off of zero this year."

The big issue is slow growth overseas, Kohn explains. Japan's economy shrank 1.6 percent annualized in the third quarter, the eurozone grew only 0.6 percent during that period, and China's growth is slowing as well. In addition, Brazil and other large emerging markets are dealing with poor economic performance and Russia "is feeling the effects of both sanctions and the plunge in oil prices."

"To date, these global factors seem to be mostly about downside risks rather than about changing the most likely trajectory of the U.S. economy, but they do point to the possibility that the Fed could find itself making less progress toward its goals than anticipated, delaying the date of lift off."

Meanwhile, Bill Gross, the Pimco founder who is now a fund manager at Janus Capital Group, disagrees with economists' consensus forecast for 3 percent growth next year.

"Yes, we're starting from a 3-percent growth economy that will probably persist for another quarter or so," he tells CNBC. "We get back to a relatively new structural growth rate, which is not 3 percent, but probably 2 percent or even less."

The oil price drop — 44 percent so far this year — will help spark the growth slowdown, as the energy industry suffers, Gross argues.

© 2021 Newsmax Finance. All rights reserved.

The economy has exhibited strength this year, growing at an average annualized rate of 5 percent in the third quarter.
Fed, Kohn, economy, growth
Tuesday, 23 December 2014 09:08 AM
Newsmax Media, Inc.

Newsmax, Moneynews, Newsmax Health, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, and Newsmax World are trademarks of Newsmax Media, Inc.

America's News Page
© Newsmax Media, Inc.
All Rights Reserved