By Brai Odion-Esene

WASHINGTON (MNI) – The broad sentiment among economists is that the
U.S. economy will continue to expand at a modest, below-trend pace this
year, but an economist at the St. Louis Federal Reserve Bank argues it
is just as likely that growth will be stronger this year than many
expect.

“There is a countervailing narrative, equally plausible, which
points to stronger economic conditions this year than the consensus
forecast,” Kevin Kliesen wrote in the April edition St. Louis Fed’s ‘The
Regional Economist,’published Friday.

“The first argument of this narrative is that the impact of any
European recession on the U.S. has been overblown,” he said, noting that
the volume of U.S. exports to Canada, Mexico and Asia is much larger
compared to exports shipped to Europe.

“And growth in those first three markets is much faster than in
Europe,” Kliesen added.

He went on to highlight that U.S. banks and money market funds have
“greatly reduced” their exposure to Europe’s banking and financial
system.

The St. Louis Fed economist also pointed to the U.S. unemployment
rate, which has fallen much faster than many — including Fed officials
— expected, and the fact that job growth is strengthening.

“From September 2011 to February 2012, private-sector job gains
averaged nearly 215,000 per month,” he said.

And the U.S. stock market is up strongly so far in 2012, Kliesen
said, while measures of financial stress and economic uncertainty have
fallen sharply.

“These developments, combined with a housing affordability index at
record-high levels, should begin to trigger faster growth of home
sales,” he said. “Indeed, housing construction and homebuilder
confidence are rebounding, and the declines in house prices have slowed.

Kliesen acknowledged that risks to the outlook — although receding
— “still appear higher than normal.”

One such threat is rising energy and gasoline prices, which usually
exert a drag on economic activity and raise inflation rates, he said.

But with members of the Fed’s policymaking Federal Open Market
Committee projecting inflation to average slightly below 2% this year,
“most forecasters and financial market participants see little prospect
of accelerating inflation over the near-term–despite an extremely
accommodative monetary policy and large federal budget deficits,”
Kliesen said.

** MNI Washington Bureau: 202-371-2121 **

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