US economy appears to be back on track

The US economy appears to be back on track following the growth slowdown in Q1. Economic indicators, particularly from the labour market and consumer data, have improvedmarkedly of late. The Vice Chairman of the Federal Reserve Board, Stanley Fischer, sees the labour market as being on the way back to full employment.

In addition, he sees initial indications of a recovery in wage inflation. Ultimately, this will help to push CPI inflation back towards the Fed's 2% target. Fischer underlined that the Fed must act with foresight, since monetary policy acts with a time lag. 

Consequently, the Fed cannot afford to wait until this goal is achieved before changing its policy. From the more hawkish camp, St Louis Fed President James Bullard suggested that a rate hike as early as September is a clear possibility. 

He certainly does not believe that the Greek crisis will impact on the timing of the US decision. For him, the decision will depend only on the data. Bullard also recommends that the Fed guard against the emergence of a "third major macroeconomic bubble" which should be countered by raising interest rates more strongly. However, this is very much a minority view in the Fed at present, says Commerzbank.