The efforts of the Federal Reserve Will Affect on the U.S Economy

The efforts of the Federal Reserve to cut interest rates and injecting money into the financial system have affected the U.S. economy, making it more likely that recovery will be sustained, leading the Conference Board index economic indicators showed.

Nine of the 10 components of the measure designed to assess the growth prospects for the next three to six months improved in November, the biggest gain in seven years, the research group in New York reported today. For the first time since May 2009, the month before the recession ended, the spread between interest rates in the short and long term, made the largest contribution.

The drop in claims for unemployment benefits, increased consumer and business spending and rising factory orders, everything is reflected in the index shows expansion is expanding. The gains mark the end of the initial recovery phase, where improvements in the measures are more influenced by the Federal Reserve, including interest rates and money supply, flooded all the others.

"This is what the Fed wants to see," said Michelle Meyer, economist at Bank of America Merrill Lynch in New York.

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Today's report showed a slowing in supplier deliveries was the biggest contributor to growth in the LEI, which states that factories are having a demand for meeting time more difficult. The yield curve, reflecting the spread in interest rates and jobless claims showed the greatest improvements coming.

The yield curve has represented more than half of the gain of the LEI from the beginning of recovery, "said Ellen Zentner, senior U.S. economist Macro Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. His average contribution was 0.34 percentage points.

The money supply has added an average of 0.04 percentage points to the indicator since June 2009 though was the second largest contributor to the rate three times since April, and tied for largest in May.

Zentner subtracting the yield curve and the money supply adjusted for inflation the index of leading indicators and benchmark to December 2007, the onset of recession. On that basis, the measure rose 0.8 percent in November, the biggest since March and the second increase in eight months.

"Compared to 2007, you can show you around when help from the Fed began when we entered recovery," Zenteno said. The recent gains excluding the yield curve and the money supply suggests that "growth has resumed outside the Fed's help."

Higher gain

The leading index, with all its components, rose 1.1 percent in November, the biggest increase since March.

Fed's Open Market Committee on December 14, reiterated his pledge to leave interest rates low for a "prolonged period" and maintained a program of 600 billion U.S. dollars to buy Treasury until June. In a statement accompanying the announcement, policy makers said that while economic recovery is "continuous" is "insufficient" to reduce unemployment.

Unemployment rose to 9.8 percent in November and was 9.5 percent or more than 16 months, the longest streak since monthly records began in 1948.

The economy is picking up speed and can grow 3 percent to 3.5 percent next year, former Fed Chairman Alan Greenspan said in an interview yesterday afternoon in Washington. The pickup in growth should lead to enhanced recruitment and the increase in productivity tops out, he said.

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"The U.S. economy certainly has some momentum," he said. "The fourth quarter looks good. The growth rate would be 3.5 percent or more" for the last quarter of this year.

The last time the nine components of the leading index increased in a month was in October 2003 when the recovery from the recession of 2001 collected. The U.S. economy grew by 3.6 percent in 2004, the highest in four years, and the unemployment rate fell half a percent to close at 5.5 percent.

Economists this week increased its forecast for consumer spending in the fourth quarter after the government reported a larger profit to the estimated retail sales in November and revised months before the show even larger increases. The increase in estimates was on top of previous improvements to 2011 based on prospects compromise imposed by President Barack Obama and Republicans in Congress earlier this month.

The tax agreement "makes us more optimistic about growth in 2011," said economists at Credit Suisse in New York, today in a research note. The analysts, led by Neal Soss, today raised its forecast for gross domestic product next year to 3.3 percent, half a percentage point more than the previous forecast.

"The economy has more momentum as it is," he wrote. "The upgrade to our 2011 numbers come against a backdrop of continued improvement in the reading of GDP growth in 2010."