Post-pandemic boom continues, but held back by supply-chain problems
July 13, 2021
Economic Review: Inflation peaking during a bumpy transition out of the pandemic (Page 3)
Widespread supply shortages are limiting the recovery in many sectors and causing production backlogs as producers have difficulty keeping up with the surge in demand. Sharply higher prices for many goods and materials have been another consequence of limited supply — helping to push up inflation to among the highest readings over the last 40 years. Still, riding a tidal wave of consumer demand, the economy continues to show signs of strong growth this year.
Financial Markets Review: Long-term interest rates drop (Page 4)
The S&P 500 index rose for the eighth straight month in June, lifting 2021’s first-half total return to a gain of more than 15 percent. But even with the glowing performance of equity markets, long-term interest rates dropped in June (and fell still more in early July), despite the fastest economic growth in decades and the highest inflation since 2008. Since peaking in late March at 1.74 percent, the yield on the 10-year Treasury note has dropped to around 1.30 percent — the lowest level since mid-February. Better prospects for the economy and the recent jump in inflation caused some members on the FOMC to bring forward their projection of when the Fed might start to tighten monetary policy, boosting short-term rates — and making the decline in long-term rates even more surprising.
The Outlook: Booming growth is transitory, too (Page 5)
Data to be released in late July are likely to show that real gross domestic product (GDP) boomed again in the second quarter to complete a full retracement of the plunge in the first half of last year. Other metrics were similarly vibrant. Nonfarm payrolls, for example, have risen by more than three million thus far in 2021 and are on track for their largest annual increase on record.