Economic rebound sets stage for Fed rate increase

Associated Press

WASHINGTON

The U.S. economy isn’t moving at warp speed, but it looks like it will be strong enough to handle an expected interest-rate increase later this year.

Fueled by solid consumer spending, Thursday’s report on the gross domestic product underscored the steady growth that is likely to bolster the Federal Reserve’s case that it soon will be time to make a move, perhaps in September.

The economy’s total output of goods and services rebounded to a respectable annual rate of 2.3 percent in the April-June quarter, the best showing since last summer. Moreover, the first quarter managed to grow a slight 0.6 percent, reversing an earlier government estimate of a contraction.

“The fact that the economy improved meaningfully in the second quarter and is likely to strengthen further in the current quarter should keep a September rate hike on the table,” said Sal Guatieri, senior economist at BMO Capital Markets.

Though the latest figures fall short of a boom, the United States appears in better shape than other major economics of the world. China – the world’s second-biggest economy – has seen a sharp drop in stock prices recently. Meanwhile, Europe has been consumed with resolving a stubborn debt crisis in Greece.

The International Monetary Fund is forecasting that the 19 nations that use the euro currency will grow a modest 1.5 percent this year. It expects China to expand 6.8 percent, which would be the slowest growth rate for the country in 25 years.

In the United States, economists are hopeful that the 1.5 percent average growth from January through June will double in the second half of this year to about 3 percent.