Fed will have to think too hard to raise interest rate..

U.S. economy increases by 2.5 % in second quarter: The U.S. economy rose at an annual rate of 2.5% in the second quarter of this fiscal, the slowest pace since the end of last year, the US Commerce Department said on Friday. The rate of increase in GDP was way below Wall Street's estimates of 3 % and less than half of the blistering 5.6 % rate recorded in the first quarter. Analysts said slower consumer spending, especially on costly durable goods like new cars, was a key reason for the slower growth rate. The weaker-than-expected reading reinforced beliefs that the Federal Reserve may not need to hike interest rates further when they meet on 8th August.While investors have been spooked by any hint of higher prices, they likely set aside the GDP's inflation component because recent reports have shown a more benign trend. "The deceleration in real GDP growth in the second quarter primarily reflected downturns in personal consumption expenditure (PCE) for durable goods and in equipment and software, deceleration in exports and in PCE for non-durable goods, and a downturn in federal government spending," said the department in a statement. The slow pace also reflected "a larger decrease in residential fixed investment which was partly offset by a deceleration in imports, an acceleration in PCE for services, and an upturn in private inventory investment," it added. GDP measures the value of all goods and services produced within a country and is considered the best barometer of a country's economic well-being The 2.5 % pace was the slowest since a 1.8 % growth rate in the final quarter of 2005, when the economy was suffering a fallout from the devastating Gulf Coast hurricanes. Meanwhile, an inflation gauge favoured by the Federal Reserve - a measure of PCE prices excluding food and energy - jumped at the rate of 2.9% in the second quarter, up from the first quarter's 2.1 %. The growth rate has marked the fastest rate of increase for the gauge in nearly 12 years since the third quarter of 1994 when it jumped to a 3.2 % rate. So, if there is further, more-than-such-expected increase, in the core consumer price index it could push the Fed to keep lifting interest rates. But all analysts are of the opnion that with this rate of growth and inflation tiger in a cage, Fed will have to think too hard to find a meaningful solution to the interest rate crisis. [with inputs from Internet] Best Wishes, Suman Mukherjee India. www.sumanspeaks.blogspot.com