“If the incoming data support the view that the economy is able to sustain a reasonable cruising speed, we will ease the pressure on the accelerator by gradually reducing the pace of purchases,” Bernanke said at the press conference in Washington. “However, any need to consider applying the brakes by raising short-term rates is still far in the future.”
It may be a few months before it becomes clear how the economy will adapt to the volatility in the stock and bond markets generated by the prospect of a wind-down in Fed stimulus, economists said. At the same time, a recent surge in borrowing costs may slow the residential real-estate recovery rather than derail it, they said. Purchases of new homes jumped in May to a five-year high, figures showed yesterday.
“If the rise in rates continues indefinitely, that will have an effect over time,” Dean Maki, the New York-based chief U.S. economist for Barclays Plc, said before today’s report. “But for now, housing is in solid shape.”
Rising home prices are likely to keep boosting Americans’ wealth and their ability to spend. Values of existing properties in 20 U.S. cities in April posted the biggest year-over-year gain since March 2006, according to S&P/Case-Shiller data.
The automobile industry continues to be a bright spot as May sales indicated it is on course for the best year since 2007, which in turn is encouraging automakers to invest and hire. Ford Motor Co. said it is adding 2,000 workers and a third shift at its F-150 factory in Missouri to increase production of pickups beginning in the third quarter.
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