The fears of economists that the rapid economic recovery will lead to its “overheating” are premature, as millions of Americans are still not out of the crisis.
Citing analyst estimates, The Washington Post notes that the economy will grow at the fastest pace in four decades in 2021. This, in particular, will be facilitated by the $1.9 trillion state support program. Only rapid growth does not mean victory over the crisis.
No matter how loud the figures are called by officials or economists, millions of US residents are still unemployed and making ends meet. Not surprisingly, the Joe Biden administration is preparing an infrastructure program worth at least $3 trillion. The move, officially meant to update the country’s aging bridges and roads, is also a desperate attempt to create new jobs.
It should not be forgotten, however, that the number of jobs in America’s leisure and hospitality sector has declined by 3.5 million, or 20%. In total, the American labor market has lost 9.5 million jobs and it is unclear when this will change. Moreover, many jobs will disappear forever, as in the face of the pandemic, many enterprises have begun to actively automate production.
This grim picture reveals an equally grim side to the Fed’s plan to keep interest rates near zero for quite some time. Previously, the Fed raised rates and slowed economic growth in order to prevent inflation from too high. As a consequence, for years inflation remained below the Fed’s target of 2%.
The Fed is now tolerating higher inflation if it creates more jobs. Jerome Powell, head of the US Federal Reserve, argues that any price increase will be temporary and will not affect the entire economy. Meanwhile, economists and Wall Street investors are trying to determine how much inflation the Fed is willing to tolerate before raising rates. This move will make funding more expensive, which in the long term will lead to a correction in US stocks.