Stephen Zielinski

June – July 2021

THE ECONOMY

U.S. GDP expanded in the second quarter at an annual rate of 6.5%, below expectations of 8.4%, largely due to inventory shortages in the supply chain; however, the US economy is now larger than it was before the pandemic. The service sector grew for the 13th straight month.

The Economy:

The Federal Reserve narrative changed to a more hawkish tone regarding short-term interest rates as Chairman Powell said they may need to increase interest rates sooner than originally expected. This is likely to start with the Fed tapering its bond purchasing program.
Higher GDP growth rates and inflation tendencies also prompted other Central Banks to take more aggressive positions on combating inflation, including Canada, New Zealand, Brazil, Mexico, Norway, and Russia.
The result of a more hawkish outlook is a stronger U.S. Dollar (and other currencies) compared to the Euro, as the European Central Bank (ECB) continued to take a more dovish outlook on raising interest rates, as the vaccination and reopening process has accelerated less rapidly in Europe than in the U.S..
The Consumer Price Index (CPI) increased 5 percent in U.S. from May 2020 to May 2021. It was the biggest jump in nearly 13 years, as the economy rebounded from Covid-19. But there are reasons to expect inflation rates to level off after the immediate recovery rebound including a persistent global savings glut; aging populations; and advances in technology which are all expected to temper long-term inflation.

The Economy:

The rise in GDP reflected an acceleration of the economic recovery and was sparked by a 10.7% surge in consumer expenditures, which is the largest component of the U.S. domestic economy. Similar trends are evident in Europe, just lagging the U.S. by several months.
The broad commodity price increase has been driven by an acceleration of global economic growth, improving consumer confidence, rising housing prices, and instances of supply constraints.