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EDITIONS
Thursday, 30 January, 2003, 18:57 GMT
US economy hits the brakes
US store
Consumers take fright as war looms
The US economy slowed alarmingly in the final quarter of 2002, growing at an annual rate of just 0.7% due to uncertainty caused by talk of war.

The preliminary result was below analysts' expectations of 1% growth, after the economy grew by 4% in the third quarter.

It will be unwelcome news for President George W Bush - who is threatening a unilateral attack on Iraq - after he proposed $674bn in tax cuts to stimulate the economy ahead of his re-election campaign in 2004.

The US Federal Reserve on Wednesday left its key interest rate at a 41-year low of 1.25%.

The central bank has cut interest rates 12 times since January 2001, with the last reduction coming in November 2002, to kick-start the troubled economy.

Fed optimism

Meanwhile, minutes of the Fed's December meeting, released on Thursday, show the policymakers believed they were laying the foundations for recovery by deciding to keep rates on hold.

The central bankers put their faith in improved market conditions, the document suggests.

"The members agreed that, given what was now a quite accommodative policy following the relatively aggressive easing move in November, monetary policy was well positioned to support a strengthening economic expansion in line with their expectations for coming quarters," minutes of the Federal Open Markets Committee's (FOMC) 10 December meeting said.

Predictions

Meanwhile, Wall Street bond dealers polled by Reuters on Thursday said they expected the Fed to leave interest rates on hold at its next meeting in March.

A minority of dealers expected a weaker economy will trigger another rate cut.

Looking further ahead, dealers were sharply divided over when the Fed will start to gradually increase interest rates again.

Predictions ranged from August 2003 to the middle of 2004.

Revisions

Thursday's GDP figures show overall US growth for 2002 was 2.4% compared with the 0.3% recorded in 2001, during which the economy fell into recession.

The latest data represents the weakest quarterly growth since the third quarter of 2001.

Consumer spending, which accounts for two-thirds of the US economy, rose just 1% in the quarter compare with 4.2% in the previous one, making it the weakest quarter of consumer spending since the first quarter of 1993.

The Department of Commerce's first estimate of quarterly growth always involves assumptions about the final month of the quarter, and revises the figure twice.

The first revision will be released on 28 February.

 WATCH/LISTEN
 ON THIS STORY
Carl Weinberg of High Frequency Economics
"The US economy is growing at an almost acceptable pace"
See also:

29 Jan 03 | Business
27 Jan 03 | Americas
24 Jan 03 | Business
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