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US Economy- August 2021

It's a cautious foot on the brake pedal for the Federal Reserve as Fed chair Jerome Powell signalled potential stimulus tapering after surging share prices and inflation. Nonetheless, the S&P500 and Nasdaq shot to new highs following Powell's announcement, his markedly hawkish remarks easing financial market expectations. The signalling from the Feds suggest that much of worrisome signs have been temporary blips in the data. The 5.4% inflation rate, over two-and-a-half times the 2% target, has exhibited few indications that it will translate into a wage-price spiral. In addition, much of the price surge has been attributed to the low base effect of the disinflationary environment at the peak of the pandemic last year, as well as ongoing supply constraints placing upward pressure on prices.

Headwinds are likely to weigh down on inflationary expectations as well. While the low price spell has apparently worn off the US, the rest of the global economy is still struggling to increase their inflation rates to at least pre-pandemic levels. A key reason for this has been the disparate pace of re-opening, a prime example being Australia's hero to zero moment following its Delta outbreak. While it's too early to say, US inflation could certainly fall back in line with the global trend once the dust settles, especially if the Delta variant spreads further. Nevertheless, at its current pace, the US economy is boasting strong employment figures of 5.4% as it sets its sights on re-opening the economy, a trajectory only grazed by a little inflation.



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