Fed governor tips 4% growth

THE US economy is set to accelerate towards the end of the year with quarterly growth likely to top 4% as the recovery becomes entrenched, a Federal Reserve Governor has said.

The comments from Robert McTeer, president and chief executive of Dallas Federal Reserve Bank, one of the 12 regional banks that make up the Federal Reserve System, are among the most optimistic recently and will boost investors' hopes that the world's largest economy is picking up.

But that growth, if it comes, may be of little comfort to President Bush as he seeks re-election, as there are few signs of accompanying jobs growth. 'I think the [third] quarter we just finished will easily be over 4%...I would say over 4% for the rest of the year,' said McTeer.

Last year the US economy expanded by 2.9% over the full year following zero growth in 2001 and an expansion of 2.8% in 2000. In 1999, full-year growth was 4.3%.

Echoing assessments from other Federal Reserve policymakers, McTeer said that as inflation remained subdued there was no apparent need for the central bank to raise interest rates from their four-decade low of 1%.

'I think there's enough slack in the economy...for interest rates to be on the historically low side for the foreseeable future,' he said. 'I don't see any real need to start fighting inflation.'

Economists said that while the headline quarterly growth figures appeared firmly on an upward track, rising defence spending to support US military commitments in Iraq and Afghanistan was helping to boost the numbers.

'A lot of this will be attributable to good ol' Uncle Sam,' said Song Seng Wun, regional economist at GK Goh in Singapore.

McTeer said the strong run-up in US productivity - a measure of output per worker - was 'surely not anywhere near sustainable'.

It reached 6.8% in the second quarter as businesses processed more work with the same number of workers or fewer. That trend has led to lengthening dole queues and widespread doubts about a jobless recovery.

McTeer said that an extra fillip for growth should come from a weaker US currency - making US exports cheaper - if it were sustained. 'I think the decline in the dollar is going to be stimulative in the longer run,' he said.

The greenback has lost ground over the past week and a half after the Group of Seven called for more flexible exchange rates.

While US Treasury Secretary John Snow has consistently said he supports of a strong dollar policy, analysts believe the Bush administration is comfortable with a weaker currency.