The US economy responded to the highly
accommodative monetary and fiscal policies to surge ahead in
the second half of 2003. Household spending grew at a brisk
pace, and after a period of consolidation, private capital spending
also picked up, fuelled by low interest rates, robust corporate
profits and accelerated depreciation allowance. Leading indicators
suggest that the growth momentum will remain strong in 2004.
The Institute of Supply Managements indices of manufacturing
and non-manufacturing activities recorded high readings in the
first five months of this year. Industrial ouput and capacity
utilisation have picked up strongly amid robust retail sales.
Indeed, consensus forecast for GDP growth this year has risen
to 4.7%, the fastest in two decades.
Not surprisingly, the renewed strength in the US economy, rising
employment and higher oil prices have reignited fears of rising
inflation. Reflecting these fears, the yield on the benchmark
10-year Treasury note has backed up to about 4.7% in June, more
than 100 basis point above its low in March. Rising optimism
about the US economy has led to a brief strengthening of the
US Dollar in the first few months of this year.
Enhancing Risk-focused Supervisory Approach
Box 1 Fostering a Sound and Progressive
Financial Services Sector