Tepid Growth Restrains Fed

Easy Money to Keep Flowing for Now as Economy Plods Ahead; Inflation Stays Tame.

The U.S. economy registered subpar growth and low inflation in the first half of the year, factors that led the Federal Reserve Wednesday to keep its easy-money policies in place.

The Commerce Department reported Wednesday that the economy grew at a 1.7% annual rate in the second quarter, enough to ease fears of a full-on summertime economic stall but still a sluggish pace by historic standards. Economists had feared tepid global growth and the budget cuts known as the “sequester” would lead to an even worse result of growth below 1% in the second quarter.

Consumers kept spending despite higher taxes, business investment ticked up a bit after slowing earlier in the year and government spending cuts turned out to be smaller than feared, the government said in its report on the nation’s gross domestic product—a measure of its total output of goods and services.

Still, the April-June performance was only a small acceleration after the first quarter’s revised paltry 1.1% growth rate and represents little comeback from the end of last year, when the economy barely grew.

The Commerce Department also significantly reduced its estimates for the prior four quarters and said the annual pace of growth since the recovery began in mid-2009 was only 2.2%, well below the nation’s long-term trend of over 3%.

The overall view is of an economy moving in the right direction, yet mired in a sluggish recovery that prevents it from bringing down unemployment quickly.

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