A New Economic World

WASHINGTON, D.C.: The Commerce Department reported a surprisingly strong economy in the First Quarter of 1996, with growth at an annual rate of 2.8 percent. Growth increased fivefold from the anemic 0.5 percent growth rate in the Fourth Quarter of 1995. The surge is attributed mainly to a rise in consumer spending and business investment. "The most impressive thing is that accompanying the extraordinary growth in the first quarter are numbers which indicate that inflation is at the lowest level in 30 years," says TIME's Bernard Baumohl. "This shows that this growth is not necessarily inflationary, the economy can continue to grow and there won't be any reason for the Federal Reserve to raise interest rates." Interest rates soared on the bond market today because of the fear that the strong economic figures will lead to the build-up of inflationary pressures, especially before Friday's key employment data which could heighten inflationary fears. "The bond market reacts badly whenever the economy grows significantly above two percent because it fears inflationary pressures looming," reports Baumohl. "But it looks like we are in a new world where productivity can rise enough that the economy can grow at a healthy pace without heating up. The Federal Reserve and Wall Street ought to chill out and enjoy the good news."