The COVID-19 pandemic has thrown all predictions to the winds and speaking of any trends in the post-pandemic economy is daunting. While the economy recovered amazingly despite all doomsday predictions, it again sucks into the inflation trap that has left millions hoping for a fourth stimulus check to rescue them one more time. But it appears that the federal administration has more pressing issues to worry about at this moment.
The economy bounces fast and hard despite all predictions to the contrary. The recession period brought on by the pandemic was brief and lasted the initial months of the pandemic during a period of acute uncertainty between February and April 2020.
The unemployment rate rose abruptly at this stage from 4% to peak at 14% before quickly falling back to an even keel within a matter of months and stands at a very positive 3.6%, and has stood at that level for 4 months in a row.
There were notable recent gains in professional and business services, health care, and leisure and hospitality. The number of unemployed persons remains virtually unchanged at 5.9M in June. The measures vary very little from the figures of February 2020 before the pandemic when the unemployment rate was 3.5% or 5.7 million people. Stimulus Check
Inflation has negated many of the good indicators in the economic recovery. It has risen steadily over the past year and a half. It increased 5.4% between June 2020 and June 2021. It has been the biggest rise over 12 months since August 2008. Stimulus Check
Many leading economists are confident that inflation will drop on its own as transitory factories like pent-up consumer demands and supply chain disruption issues get resolved. But all the same, we cannot ignore the unpleasant fact that the inflation rate is the highest it has ever been over the last 40 years. Stimulus Check
Even during the Great Recession, it never went above the 2% mark. Many economists say that they never could have predicted this kind of inflation in their lifetime. Stimulus Check
The high inflation came with profound consequences in the absence of any stimulus checks in 2022. The expectation of higher prices in the future has led to current prices also cresting in long-term contracts, from supply contracts to employment contracts.
Higher Interest Rates By The Federal Reserve Could Disrupt The Road To Recovery
In June 2020, the Federal Reserve had predicted a 1.5% inflation rate by the end-2021, which was well below the annual target of 2%. They were way off their prediction.
After a meeting last month. The Fed raised its key rate by three-quarters of a point to a range of 1.5% to 1.75%. it is the biggest single increase in 3 decades. They have also signaled that further large hikes may be further required to tame inflation.
Officials hinted that the central bank would need to raise its benchmark interest rate to restrictive levels that would slow the growth of the economy and also recognized that a further restrictive stance might be considered appropriate in inflation persisted.
The Fed has been strengthening its drive to slow growth and tighten credit with inflation crossing a 4-decade high at 8.6%. it has also spread to more areas of the economy and has become all-pervasive.
More importantly, Americans have started to expect inflation to remain high for a longer period. This sentiment could embed inflationary psychology in them. It would make it harder to slow the increase in all-around prices.
With the midterms closing in, high inflation has surged to the top of the mind of most Americans and poses a deep threat to President Biden and his Democratic Party.
Earlier Chair Jerome Powell of the Federal Reserve suggested a rate hike between one-half and three-quarters of a point when the policymakers met later in the month. The rate hike at this level was something that the official agreed upon, and stated would be appropriate. The rate hike of this size would have exceeded the quarter-point increase that the Fed has characteristically carried out in the past.
The Federal Reserve Pushes The Envelope On Raising Rates
Investors were ready for the Fed to turn hawkish, and it delivered as expected. They raised their target range on the instant rates by three-quarters of a percentage point. It turned out to be a bigger hike than seemed likely up until earlier in the week.
This hike also indicated that there could be a more sharp increase in rates through the year-end and the increase is expected to continue into 2023.
Consumers Cut Costs In Absence Of Stimulus Check
Many Americans, unwilling, and in many cases unable, to stomach, the higher prices have started to forgo many outings and purchases. The absence of a stimulus check to see them through the inflation seems unlikely, at least from the Federal administration.
Consumer outlook in the short-term on the American economy has reached its lowest point in 10 years. Higher prices are denting the consumer economy. Many individuals and families had managed to set aside a part of the three rounds of stimulus checks and also the CTC stimulus checks that came last.
But most people had to dip into that savings. The pace of spending has eased to its slowest pace this year in May. The cutback in consumer spending threatens to weigh in on the growth of the economy. This is something that never happened during the pandemic periods as people had money on their hands, thanks to the stimulus checks.
Economists realize that the economy is on the edge of a recessionary precipice and would go down under the burden of inflation and the Fed attempt to curb it using aggressive hikes in interest rates.
There has been a cutback in spending like never before, with even people who can afford to spend at this stage cutting back in fear of a more difficult future. Demand for cars is shifting from luxury models to small, more fuel-efficient ones because of the record gasoline prices which have doubled in just two years.
Prices of food have jumped 11.9% in May from a year before. It is the biggest increase since 1979.
People are also cutting back on non-essential and discretionary purchases such as electronics and furniture, according to the commerce department.