Post-Pandemic the US Economy is soaring towards its recovery with Biden’s massive $1.9 trillion ‘American Rescue Plan’ and a bolstered GDP projection for 2021. But there’s fear of Inflation among the Average Joe.
Throughout 2020, all anyone talked about was the pandemic unleashed by the novel coronavirus. Any discourse on Covid-19 spreading like wildfire and the measures being put in place to handle it inevitably brought up the economic repercussions of people being asked to wait out the pandemic by staying home. The shutting of schools and businesses naturally shriveled up the marketplace around the world. Even a robust economy like the US could not remain unscathed. The US Economy is headed toward recovery in 2021, but as inflation comes with it Americans could end up paying a pretty penny.
US Economy is Headed Toward Recovery, But It Will Cost Americans a Pretty Penny.
Around March, when the lockdowns were just being rolled out, economic experts remained hopeful of a V-shaped or U-shaped recovery on the financial front. As the year rolled on and the pandemic worsened, the analysis changed to more grim predictions of a painfully slow L-shaped recovery. Some experts warned of a recession worse than the one brought on by the American housing bubble, while others said the pandemic could plummet the US – and by, extension, the world economy – into yet another depression.
Watch: What shape will the US Economy’s Recovery take in 2021?
Three months into 2021, things are looking up. Experts are now growing increasingly confident that the US economy will set out on a path to recovery. However, this rebound will come at a cost.
Boom in US Economy will Make Everything Dearer
The US is thawing from the lockdown in the wake of Biden’s $1.9 trillion stimulus package. Coupled with the reopening of restaurants, entertainment venues and sports arenas and a revival of public spending, the country’s economic health is also showing early signs of improvement. In a recent statement, Bank of America already boosted its GDP estimates for 2021 from 6% to 6.5%.You will find more infographics at Statista
While this could well be the biggest boom the American markets have seen in a generation, it will come at a cost for the average Joe. Wall Street is already predicting a spike in the prices of certain commodities and services. JP Morgan also believes that this growing demand for goods and services after a lull of almost a year could boost prices across the board.
The Treasury Yields Benchmark
The predictions for US Economy’s inflation in 2021 are based on rising Treasury yields. Moreover, economists are seeing signs that the prices of even essentials like healthcare, housing, and gas are likely to rise in the near future. The 10-year yield has maintained a steadily upward trajectory throughout February, leaping to a high of 1.614% last week. This is being seen as a reflection of Biden’s stimulus package proving to be a catalyst for economic optimism. This is crucial because Treasury yields are seen as a direct indicator of the likelihood of inflation, serving as a benchmark for the credit market as well.
Car loan rates, for instance, could be governed by this benchmark. The same holds for commodity prices. Since the commodity markets operate on predictions of future sales, yields can drive up the prices, resulting in a short-term but steep rise in inflation. Similarly, Treasury yields are a reflection of how investors view the economy’s performance in the immediate future. Their predictions can, in turn, influence spending activity.
The Economy won’t Overheat
Experts believe that these are all indicators of an economy nursing back to health and crucial for making a recovery on the financial front. As a result, the US economy’s inflation rate in 2021 is likely to remain at or above the 2% mark projected by the Federal Reserve. The UBS global wealth management chief investment officer Mark Haefele also agrees that a short-term inflation spike is a forgone conclusion, even though he believes that concerns about a persistent growth in inflation could be an overreach.
Of course, none of this can seem like good news to Americans many of whom are still grappling with job losses and financial instability. On the bright side, this rise won’t likely result in an overheated economy marked by an unsustainable rate of expansion. This means the US might just have swerved its way out of a recession or worse still a painful L-shaped depression.
Even as prices are expected to rise in the interim, experts view this as a sign that the impacts of the pandemic are receding faster than expected and normalcy is returning to the American way of life.