The income gap might not matter for economic growth in the short term. As long as consumers in the aggregate spend more, it will add to GDP, said Deutsche Bank Securities Inc. Chief U.S. Economist Joseph LaVorgna.
Through 2014, continued monetary easing from the Federal Reserve could keep providing fuel for the so-called wealth effect. Central bank policy makers have indicated that the Fed will keep its main interest rate near zero even as it slows its unprecedented pace of asset purchases, which it scaled back to $75 billion a month from an $85 billion pace.
Fed policy makers, who meet Jan. 28-29, will probably reduce their bond purchases in $10 billion increments over the next six meetings before announcing an end to the program no later than December, according to a Bloomberg News survey of economists following the latest jobs report.
Slower Easing
“The Fed is still easing, they’re just easing at a slower pace,” New York-based LaVorgna said. Consumers have already started to exhibit the sort of vitality that may lie ahead, he said. Retail sales increased 0.2 percent in December after a 0.4 percent advance in November, Commerce Department figures showed. Excluding cars, demand jumped by the most in almost a year.
“The consumer did better in the fourth quarter than at any point in recent history,” LaVorgna said. “Barring a negative, exogenous shock, there is no reason why the consumer won’t spend at a healthy pace this year, and we expect real GDP growth to reach the promised land of 3 percent-plus growth.”