Gregory Daco, Chief US Economist, and Kathy Bostjancic, Chief US Financial Economist, discuss the many facets of this economic recovery. Inflation has surged to levels not seen since the early 1990s. Consumers are shying away from goods and splurging on services. And, manufacturing is being pulled forward by strong demand but restrained by capital and labor supply constraints. Fed Chair Powell argued in favor of a dovish policy stance during his semi-annual Congress testimony. He reiterated that the inflation spike was transitory while acknowledging the Fed's will and ability to react should inflation prove persistent. In line with the view that tightening monetary policy in the face of supply-constrained activity would be misguided, we continue to anticipate QE tapering in early 2022, and a first rate hike only in 2023. While many argue inflation is the most important risk to the US economy, we contend that the health situation should warrant more attention. A rapidly spreading Delta variant could spell trouble for the economy in the fall. Another risk stems from a reduced fiscal impulse in 2022 as policymakers may shy away from additional stimulus in the face of higher inflation.
This Podcast is available to listen to now (on-demand, listen at your convenience) until 20th August 2021.