August 1, 2021

The Fed anticipates a spectacular economic rebound in the United States

Listening to Jerome Powell, chairman of the US Federal Reserve (Fed), all signs of economic recovery are green in the United States. “The demand is very strong. Household incomes are high, people have money in their bank accounts, the demand for consumer goods is extremely high and has not diminished, the service sector is reopening… ”

The Fed, whose steering committee met on Wednesday, June 16, now forecasts 7% growth in 2021 and an unemployment rate that will drop to 4.5% by the end of the year, against 5, 8% currently. With the Covid-19 vaccination program progressing rapidly, health restrictions are being lifted one after the other.

Thanks to the stimulus package of 1.9 trillion dollars (1.571 billion euros) put in place by President Joe Biden – which notably made it possible to distribute checks of 1400 dollars to most Americans – households are starting this turning point in good financial health. The labor market should follow the same dynamic. Moreover, the number of job offers today exceeds the number of unemployed. “There is currently a job for who wants one”, underlines Aneta Markowska, economist at the American bank Jefferies.

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But Mr. Powell is faced with a pitfall: inflation. In May, it reached 5%, well above the official 2% target set by the Fed. Core inflation (excluding food and energy prices) is 3.8%, its highest level since 1992. Hence the concern of some economists: isn’t the national economy overheating? Shouldn’t the Fed start to apply the brake?

“Bigger bottlenecks than expected”

Not at the moment, retorts Jerome Powell. For him, the strong surge in inflation is only temporary and the price index should drop to 2.1% in 2022. The Fed has therefore decided to keep its key rate in the range of 0% to 0.25 %, and continue to intervene in the markets, spending $ 120 billion a month to buy debt. The only change from its previous meetings is that its members are now anticipating a rate hike from 2023, instead of 2024. They also, for the first time, raised the possibility of reducing debt purchases, but without taking a decision, nor set a timetable.

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