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February Monthly Dashboard: Stimulus fuels economic growth acceleration

February 26, 2021
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Monthly Review (Page 3)

The economy is showing signs of breaking out of its recent funk with new COVID-19 infections falling sharply and vaccine usage rising steadily (now averaging nearly 2.0 million per day) — which should lead to eased government restrictions on in-person activity soon. While job growth remained weak for January and initial jobless claims have flattened out, higher employment readings from the ISM surveys suggest that businesses could be looking to hire in greater numbers. Retail sales soared for January with a significant boost provided by the most recent fiscal stimulus package while consumer mobility measures have largely recovered to levels from before the latest wave of infections. These improvements suggest that growth should be on the upswing over the rest of the first quarter. Long-term interest rates continued to climb into mid-February, driven by higher expectations for economic activity and inflation, as well as sharply higher federal budget deficits. Broad equity market indices also trended higher as investors look ahead to a reopening of the economy and stronger corporate profits.

Outlook (Page 4)

The building blocks for a post-pandemic surge in economic activity are coming together, potentially as early as the second quarter. Increased vaccine distribution and falling COVID cases, joined with the most expansionary monetary policy and largest combined fiscal stimulus funding in U.S. history, should drive strong consumer spending and hiring by businesses later this year as the economy returns to normal. The ramp up in global demand could lead to a temporary supply crunch for some goods and services (i.e., crude oil and lumber), causing a temporary pop in inflation this year. We expect that price gains will eventually stabilize as supply catches up — but there could be an extended period of modestly above-trend inflation in response to the record pace of money growth caused by expansionary monetary policy. Higher inflation expectations and expected larger federal budget deficits should act to push up long-term interest rates — although continued investor demand for government debt should keep them from rising rapidly. The outlook for interest rates remains lower for longer but the risks favor the upside for longer-term rates at present.

Go deeper with the full February dashboard linked below.

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