“…We are well set for a 7 per cent plus annualised GDP [gross domestic product] growth figure for 1Q [first quarter],” said James Knightley, chief international economist with the ING Group, a Dutch multinational banking and financial services corporation headquartered in Amsterdam.
Ongoing relaxation of COVID containment measures will increase the opportunities for job creation and spending in the economy with Q2 GDP growth potentially reaching double figures. This would leave the level of GDP above pre-COVID levels, underlining the effectiveness of the US response to the pandemic, Knightley wrote.
Job opportunities are improving markedly while extended federal unemployment benefits continue through to September giving the unemployed the guarantee of robust financial support should they fail to find work, he wrote.
This situation should heighten the chances that households use some of their accrued savings for even more spending over coming months. The Federal Reserve Flow of Funds report showed the amount of money households have in cash, checking and time deposit accounts has increased by more than $2 trillion between Q1 2020 and Q4 the same year.
“This underlines our argument that the risks to growth are overwhelmingly to the upside assuming vaccines continue to be effective against any new COVID strains,” he wrote.
“Given this remarkable growth backdrop we find it increasingly difficult to believe that the Federal Reserve will wait until 2024 before raising interest rates. Our house view is currently for a 2Q23 [second quarter of 2023] move, but with inflation almost certainly hitting 4 per cent in May and likely to stay above 3 per cent for most of the next 12 months on demand/supply imbalances and a greater housing contribution to CPI [consumer price inflation], we see the risks increasingly skewed towards a December 2022 rate hike,” he added.
Fibre2Fashion News Desk (DS)