Jefferies’ McCarthy Expects 3% Economic Growth in Second Half

Ward McCarthy, chief financial economist at Jefferies & Co. Inc. in New York, said he expects U.S. growth to pick up during the second half of the year as inflation without food and fuel costs reaches 2 percent in 2012.

“I do think we can do better than we’ve done in Q1 and Q2,” McCarthy said this morning in a radio interview on “Bloomberg Surveillance” with Tom Keene. “I think that 3 percent or thereabouts is doable in the second half of the year.”

The economy grew at a rate of 1.9 percent in the first quarter, according to Commerce Department figures released on June 24. Consumer spending unexpectedly stagnated in May as employment prospects dimmed and rising inflation caused Americans to cut back, Commerce Department figures showed today in Washington.

McCarthy said he expects the core consumer price index, an inflation barometer that excludes fuel and food prices, to be at 1.5 percent at the end of the year and reach 2 percent this time next year. The core CPI was running at 1.5 percent in May on an annual basis while consumer prices including food and fuel, the so-called headline inflation number, rose 3.6 percent last month from May 2010.

“What we’re going to see in the months immediately ahead is the divergence between headline and core inflation, with core inflation continuing to tick higher and headline inflation actually easing up somewhat,” he said in the radio interview.

Gasoline Prices

McCarthy said a decline in gas prices, which have retreated since a $3.99 per gallon high on May 4, will help to bring the headline inflation gauge down.

Fed Chairman Ben S. Bernanke said at a press conference after a meeting of the Federal Open Market Committee on June 22 that the current slowdown is in part due to temporary factors like supply chain disruptions caused by the March earthquake in Japan and rising commodity prices.

Bernanke also said a “frustratingly slow” decline in the unemployment rate is contributing to sluggish economic growth. McCarthy said he expects unemployment to be about 8 percent by Election Day 2012, down from its current level of 9.1 percent.

McCarthy said the “key variable” in Fed policy will be whether the crisis in Greece affects U.S. economic conditions.

“Bernanke is very concerned about the potential for financial contagion if there is a European meltdown and were that to happen he would again open the floodgates rather than tighten monetary policy,” McCarthy said.

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