Heating Up: US Economic Growth Sizzles In Strong First Quarter

Fed leaves ultra-accommodative policies unchanged

Turning to the Fed, Ristuben noted that the central bank left its easy-money policy in place at the conclusion of its two-day meeting on April 28. Markets were expecting this, he said, as Fed Chair Jerome Powell has repeatedly emphasized that the central bank won’t begin considering changes until inflation is averaging 2% over a longer period of time and full employment has been reached.

“The Fed did note in its statement that the economy has strengthened, but also pointed out how the recovery has been uneven and remains far from complete,” Ristuben said. He added that the central bank noted that inflation has also risen—primarily due to transitory factors.

“The Fed doesn’t see inflation as a problem in the short-term, and I think that’s the correct view,” he said. Ristuben explained that a fair amount of the expected pick-up in inflation over the next few months will likely be due to the base effect—the term used to describe distortions in inflation data when current numbers are compared to extremely low (or high) numbers from the prior year. Because inflation was all but non-existent last spring due to coronavirus-induced shutdowns, inflation reports from the next few months are likely to be skewed, Ristuben said, and therefore not necessarily indicative of increasing price pressures.

“Massive amounts of stimulus and really strong economic growth typically do lead to inflation, but right now, there’s still a fair amount of slack in the economy—especially in the labor market,” he stated. The nation’s unemployment rate, for instance, is still 2.5% above where it stood before the onset of the pandemic, Ristuben said, adding that there are 8.4 million fewer jobs today than in February 2020. Because of this, he believes inflation is unlikely to become a problem until at least next year.

European earnings soar

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