GDP Rose 2.4% in Second Quarter
On Friday, the Commerce Department reported that U.S. gross domestic product rose at an annualized seasonally adjusted rate of 2.4% for the second quarter, indicating that the recovery has been weaker than previously expected. However, the report also indicated that business spending increased by 21.9% in the second quarter, compared with a 20.4% rise in the first three months. The figures highlight the contrast in the economy between company profits and the slower jobs market. The underlying inflation rate increased by 1.1% in the April-to-June period over the previous quarter. The consumer price index rose by only 0.1% in the second quarter, slowing sharply from a 2.1% gain in the first quarter. Gross domestic purchase prices rose 0.1%, after a 2.1% increase in the first quarter. The chain-weighted GDP price index increased by 1.8%, compared to 1.0% in the first three months. In a revised assessment of 2009, the Commerce Department’s report indicated the U.S. economy contracted by 2.6%, compared to the previously estimated 2.4% decline.
New York Attorney General Announces Probe of Insurers
On Thursday, New York Attorney General Andrew Cuomo announced that he had opened a fraud investigation into how life insurers pay out benefits after policyholders die. Cuomo said his office served subpoenas on Prudential Financial, Inc. and MetLife, Inc. as part of the probe, seeking information on the companies’ life insurance policies.
Bullard Warns of Deflation
On Thursday, James Bullard, president of the Federal Reserve Bank of St. Louis, warned that the Fed’s policies were putting the economy at risk of becoming “enmeshed in a Japanese-style deflationary outcome within the next several years.” Bullard went on to say that the best way for the Fed to avoid falling into a deflationary trap is to shift away from insisting that interest rates remain low, and instead focusing on “quantitative easing” measures by buying Treasuries, funneling money into the economy and boosting inflation expectations. On Friday he reiterated those remarks, but noted that while deflation is a risk, it is not the most likely economic scenario. Bullard has voiced worries about the “extended-period” language since early March, but he has not voted against policy action. He said Thursday his comments were intended to spark debate.