US economy grows by 4% after harsh winter weather

WASHINGTON - The US economy grew at an annual rate of 4% during the April to June period, latest figures released by the US Department of Commerce have shown.

Consumer spending - which makes up over two-thirds of US economy activity - grew by a robust 2.5%.

Business spending increased by 14% in the world's largest economy, as businesses restocked inventories.

The growth during the second quarter reverses the contraction seen earlier in the year.

From January to March, the US economy shrank a revised 2.1% on an annualised basis as a result of harsh winter weather.

However even with the rebound, the winter is likely to mean overall growth this year will be only 1.6% - less than in 2013.

That could cause the Federal Reserve - which ends a two-day meeting on Wednesday - to continue to keep interest rates low for an extended period into 2015.

Inflation fears
Overall, however, the report was strong enough to ensure that the US central bank will continue to trim its monthly bond buying purchases.

The US central bank is expected to announce that it will cut its bond-buying to $25bn (£15bn) a month from $35bn later on Wednesday. It has been buying bonds in an effort to keep long-term interest rates low and thus encourage spending, rather than saving, by businesses and consumers.

However, some have worried that keeping rates so low could spur inflation.

The Commerce Department figures showed that inflation, as measured by a component of the overall GDP report, increased by 1.9% - which is within the Fed's target, but an increase from the 1.4% annualised figure reported during the January to March period.

Marc Chandler, global head of currency at investment firm Brown Brothers Harriman, wrote in a note to clients that overall, the US economic growth data was "strong".

However, he pointed out that as a result of revisions to economic data going back to 1999, "it now appears the US economy grew more slowly than previously known over the past three years".

The US recovery from the depths of the 2009 recession remains the weakest since World War II.

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