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Mar 4, 201504:50 PMOpen Mic

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Market and economic update: U.S. economy grows as Europe, China, and Japan lag behind

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World monetary policy, in general, remains on an easier path. The European Central Bank is set to implement its quantitative easing (QE) plan. In addition, China announced further interest rate cuts, and Japan remains committed to QE in support of Abenomics reforms.

The Federal Reserve is set to ultimately buck this trend by concluding its zero-interest-rate policy, perhaps as soon as June, on the back of an improving jobs market. Over the past few months, the market’s attention has been focused on the differing paths of growth — stronger in the United States and weaker in Europe, Japan, and China. Growth patterns, in general, point to a stronger United States, although February flash Purchasing Managers Index estimates for Europe, China, and Japan seem to indicate growth may be stabilizing, albeit at modest levels, in these major economies.

In the United States, the consumer remains the key driver for solid economic activity. Fourth-quarter gross domestic product grew just 2.2%, due to weaker net exports and declines in government spending. The consumer remains the stalwart of the U.S. economy, with personal consumption expenditures growing 4.2% annualized for the quarter, the fastest quarterly pace since 2010. Rising consumer confidence and employment are likely to support solid U.S. economic activity in 2015.

The fall in oil prices has increased deflationary pressures in global inflation statistics. Prices were weak in key economies to start 2015. U.S. prices may be an exception. Despite a 0.7% decline in headline prices for the month, core prices (excluding food and energy) in the U.S. managed a 0.2% increase, consistent with a 1.6% year-over-year gain.

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