Optimism Resurfaces for US Economy

The U.S. economy is steadily on its way to recovery is the theme of a 14-page report in The Economist. It is not just the view of the reputed magazine, but something that is being talked about now with greater certainty than ever. The year 2009 saw policy makers swinging into action to bring relief to the nation’s financial markets.

The report confirms what trade pundits have been reiterating over the past few months. The stimulus measures also seem to be working slowly and steadily.

But people should not misread these and believe that all’s hunky dory now. While the economy is looking relatively better, it is still in a state of slow recovery. Monetary aid will have to be withdrawn gradually, and medium term plans to be put into place.

One of the chief concerns of financial institutions is the current interest rates, which have not been revised or increased for a while now. Experts argue that the interest rates will have to be increased to prevent inflation from rising.

A survey by Genworth Financial Wealth Management indicated that asset managers are concerned about a possible rise in inflation. These portfolio managers also said that they are faced with tough job of convincing wary investors to pitch their finances into a recovering economy.

Gold prices have reached a new high during the first quarter of 2010. Investors are slowly losing their interest in the euro, pound and US dollar and are increasingly turning to gold. Gold is being seen as the ultimate inflation hedge.

Contrary to these views and indicators, investors showed remarkable interest during the recent U.S. Treasury’s auction of long dated notes. The auction saw a sale of $21 billion in 10-year notes at a yield of 3.90 percent. Investors have opted to buy government securities as they offer a certain degree of reliability.

Several reports suggest that the lending activity is subdued currently as people are preoccupied with settling their debts. Additionally, consumers have continued to spend cautiously and the unemployment rate still stands at 9.7 per cent. Looking at all these indicators, there does not seem to be any immediate danger of a rise in the inflation rate.

Although the Federal Reserve and international governments are eager to end borrowing, economists suggest that as there is no impending rise in inflation, and monetary aid should continue till the end of the year.

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