AP Survey: US Income Gap is Holding Back Economy

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And most don’t think the economy needs the Fed’s help. Just over half say they believe growth could reach a healthy 3 percent annual pace even without the Fed’s extraordinary help.

As Janet Yellen prepares to succeed Ben Bernanke as chairman early next year, most of the economists expect the Fed to become more “dovish” — that is, more focused on fighting unemployment than on worrying about higher inflation that might result from the Fed’s actions. The Senate could confirm Yellen as soon as this week.

The economists are also confident that U.S. growth is picking up. Three-quarters said the recovery, which officially began 4½ years ago, has yet to reach its peak. And nearly all think the next recession is at least three years away; half think it’s at least five years away.

The economists forecast that growth will average 2.9 percent in 2014. That would be the healthiest annual pace since 2005.

One reason they expect healthier growth is that the effects of tax increases and government spending cuts that kicked in early this year should fade.

A budget bill that passed a pivotal test in the Senate on Tuesday will reverse some of those spending cuts. That should add slightly to economic growth. The bill also removes the threat of another government shutdown next year.

Among the economists’ other views:

— The Obama administration’s health care law will make little or no difference to the job market. About two-fifths said the law would cost jobs. None said it would increase hiring. The law has drawn fierce opposition from many small business owners, who say it will raise hiring costs by requiring companies with 50 or more employees to provide coverage starting in 2015.

— The stock market isn’t in a bubble. While the Dow Jones industrial average reached record highs earlier this year, most economists said that higher profits largely justified the gains.

— Europe will keep growing and avoid a recession in 2014. But growth will remain so tepid that inflation will be nearly non-existent. Nearly two-thirds of the economists forecast that inflation won’t consistently reach the European Central Bank’s inflation target of 2 percent until 2016.

— Inflation in the United States will remain low for the long run. A majority of economists think consumer inflation won’t consistently meet or exceed the Fed’s 2 percent target level until 2015 or later.

Economists appear to be increasingly concerned about the effects of inequality on growth. Brown, the Raymond James economist, says that marks a shift from a few years ago, when many analysts were divided over whether pay inequality was worsening.

Now, he says, “there’s not much denial of that … and you’re starting to see some research saying, yes, it does slow the economy.”

(Photo: AP)

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