AMERICAN and British central bankers face a similar tough choice. On both sides of the Atlantic, the economy is growing moderately, and unemployment is closing in on 5%. As a result, wage growth is picking up. But inflation remains low: 0.2% in America and zero in Britain, according to the central banks’ respective preferred measures. And nobody is certain how much slack remains in labour markets—a key determinant of inflationary pressure. In this mixed environment, when is the right time to raise rates? And which rate-setters will go first?
First, take growth. This week new GDP data on both sides of the Atlantic showed continued—if unspectacular—growth. America’s economy expanded at an annualised pace of 2.3% in the second quarter. It did not shrink in the first quarter, as previously thought. So far in 2015, America has grown at a 1.5% annualised pace; buoyant Britain has managed 2.2%.
Both demand and supply affect GDP growth, making it hard to judge whether the economies could do better. Debate rages about long-run supply potential in the aftermath of the financial crisis. Jeb Bush, the...Continue reading
Source: Business and finance http://ift.tt/1KBqQYB
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