Resumption Of Economic Growth Tied To Interest Rates

KNOXVILLE, Tenn. — Many analysts, including the University of Tennessee’s Matt Murray, believe the economy will accelerate by the end of 1995, but how soon is another question.

Economic growth will pick up by late summer, the Wall Street Journal reported Wednesday on the basis of a survey of 62 economists.

“It’s hard for me to see what force occurring late in the summer would actually cause a turnabout in the economy,” Murray, of UT-Knoxville’s Center for Business and Economic Research, said Wednesday.

“There was some hope the economy would rebound after a bit of a slowdown during the spring and summer and that the rebound would take place in the late summer or early fall. But it’s difficult for me to see what would cause that recovery in the next two months.”

The Federal Reserve, which engineered seven increases in short-term interest rates in one year, is meeting to discuss its monetary policy in the face of slower economic growth.

Fed Chairman Alan Greenspan has said the risks of a mild recession have increased, but he also has cautioned that the Fed’s main responsibility is fighting inflation. And inflation remains relatively low.

“If the U.S. economy continues to show signs of weakening, it’s very conceivable the Fed will lower rates,” Murray said.

“The signals are mixed right now. We’ve seen a dip in consumer confidence, and job contraction rather than job creation the last couple of months.”

Consumer spending was surprisingly strong in May, rising at a higher percentage than income did. Construction spending declined 1.9 percent, its biggest drop in four years. Spending for single-family homes slipped.

Manufacturing growth slowed in June for the second straight month.

“Until the evidence accumulates more firmly on whether the economy is moving up or down, I think the Fed is going to wait a while before lowering interest rates,” Murray said.

Contact: Matt Murray (615-974-5441)

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