Jeffrey Lacker's perspective on the US economy's economic outlook (Part 12 of 12)
US growth will likely continue
According to Jeffrey Lacker—chief of the Federal Reserve Bank of Richmond—the recent economic growth in the US will likely continue. He gave a speech in Richmond on January 9. Lacker provided his economic outlook. He stated that an acceleration of household spending, improved employment prospects, and increased economic activity in the key consumer sector are helping to expand the US economy.
Lacker referred to real gross domestic product, or GDP, as the country’s best way to gauge the overall economic activity. He shed light on the improvement shown in this metric. Over the last four quarters, the real GDP increased at an average annual rate of 2.7%—compared to the 2.1% average rate of growth over the previous four years.
The performances of popular ETFs—like the SPDR S&P 500 ETF (SPY), the Vanguard Total Stock Market ETF (VTI), and the iShares S&P 500 ETF (IVV)—reflect the course that the US economy is taking. The ETFs track blue-chip companies like Johnson & Johnson (JNJ) and ExxonMobil (XOM).
Signs of stronger, sustainable growth in the US
Lacker also believes that recent economic growth in the US will likely continue. The economy is showing signs of stronger, sustainable growth. Lacker estimates that real GDP in the US will grow at about 2.5%–3% in 2015—compared to a post-recession average growth rate of around 2.25%. Economic trends—like rising household spending and an improving labor market—should support economic growth.
Lacker added that he couldn’t “completely dismiss” a more moderate economic growth scenario. He’s leaning towards a more optimistic outlook.
He also told the audience that he couldn’t predict when the central bank will move to increase the interest rates. He also can’t predict how much the interest rates will increase. However, he did reiterate the process of normalization. Normalization will be used to raise the key interest rate. It will also be used to normalize the balance sheet’s size.
For the Fed’s latest guidance on raising the key interest rates and normalization, read our series What do the Fed’s December 2014 meeting minutes mean for investors?
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