The US economy is heading for its strongest growth in about 40 years, the Federal Reserve said on Wednesday, and central bank policymakers are pledging to keep their foot on the gas despite an expected surge of inflation.
"Strong data are before us," a confident Fed chair Jerome Powell said after a two-day policy meeting, ticking off the list of forces Fed officials expect will produce 6.5 per cent GDP growth this year – from a big federal fiscal stimulus to optimism around the success of coronavirus vaccines.
"The [stimulus] cheques are going out ... Covid cases are coming down. Vaccination is moving quickly," Mr Powell said, marking a moment in which a body of top US economic officials expect growth in the United States to rival that of China this year, not to mention surging quickly beyond that of Europe and Japan.
Fed officials, in fact, expect economic growth to remain above trend for at least two years to come, at 3.3 per cent in 2022 and 2.2 per cent in 2023, compared to estimated long-term potential growth of only 1.8 per cent.
"We are not actually done yet. We are clearly on a good path. But we are not done, and I would hate to see us take our eye off the ball."
While inflation is expected to jump to 2.4 per cent this year, above the central bank's 2 per cent target, Mr Powell said that is viewed as a temporary surge that will not change the Fed's pledge to keep its benchmark overnight interest rate near zero as part of an effort to ensure the economic wounds from the pandemic are fully healed.
Opinions among the Fed's 18 current policymakers did shift somewhat, with four now expecting rates may need to rise next year and seven seeing a rate increase in 2023.
But in overlooking the expected jump in inflation this year without a policy response, the Fed held true to its new framework and a pledge not to overreact at the first hint of rising prices, a reaction that has in the past been felt to nip off periods of growth before workers felt the full benefits.
Fed officials now expect inflation to remain tame even as the unemployment rate drops, a calculated gamble under their new approach that emphasises employment gains and downplays inflation risks.
Mr Powell noted the "strong bulk" of the policy-setting Federal Open Market Committee anticipates no interest rate increase until at least 2024, and he added that it was even too soon to talk about scaling back the $120 billion of Treasury bonds and mortgage-backed securities the Fed is buying each month to further prop up the economy.
The committee's policy statement, which kept the benchmark overnight interest rate in a target range of 0 to 0.25 per cent, was unanimous.
"We are committed to giving the economy the support it needs to return as quickly as possible to a state of maximum employment," Mr Powell said in a briefing after the Fed released its new economic projections and latest policy statement.
"We are not actually done yet. We are clearly on a good path. But we are not done, and I would hate to see us take our eye off the ball ... There are in the range of 10 million people who need to get back to work."
Markets had relaxed by the end of Mr Powell's briefing, with the Fed chief and the central bank having avoided potential disruption had they signalled that stronger economic forecasts would lead to a faster-than-expected move to scale back support for the economy.
US stocks ended the day higher, with the S&P 500 index and Dow Jones Industrial Average closing at record highs. Yields on US Treasuries on the longer end of the curve remained elevated, while those on shorter-term debt fell.
"There was just a lot of anxiety, which definitely pumped up bond yields so far, but the Fed's very dovish kind of response for a quite strong economic outlook is a big sigh of relief," said Anthony Denier, chief executive of trading platform Webull.
Compared with the Fed's first pandemic-era forecasts, issued in June of last year, the projections issued on Wednesday were a remarkable turnabout after a year some worried would produce a new Great Depression, and during a pandemic that claimed more than half a million lives in the US.
The unemployment rate is now seen falling to 4.5 per cent by the end of this year, compared to the projection in June of 6.4 per cent. It is forecast to fall even lower next year, reaching levels that would once have been considered near or below what economists view as full employment.
The projected 6.5 per cent growth in gross domestic product would be the largest annual jump since 1984.
After the rise in prices this year, the Fed expects inflation to fall back to 2 per cent in 2022.
"Considering the disruption and economic upheaval of the last year, this is mind-blowing," wrote Seema Shah, chief strategist for Principal Global Investors.
Sholto Byrnes on Myanmar politics
BIGGEST CYBER SECURITY INCIDENTS IN RECENT TIMES
SolarWinds supply chain attack: Came to light in December 2020 but had taken root for several months, compromising major tech companies, governments and its entities
Microsoft Exchange server exploitation: March 2021; attackers used a vulnerability to steal emails
Kaseya attack: July 2021; ransomware hit perpetrated REvil, resulting in severe downtime for more than 1,000 companies
Log4j breach: December 2021; attackers exploited the Java-written code to inflitrate businesses and governments
Schedule
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Benefits of first-time home buyers' scheme
- Priority access to new homes from participating developers
- Discounts on sales price of off-plan units
- Flexible payment plans from developers
- Mortgages with better interest rates, faster approval times and reduced fees
- DLD registration fee can be paid through banks or credit cards at zero interest rates
The six points:
1. Ministers should be in the field, instead of always at conferences
2. Foreign diplomacy must be left to the Ministry of Foreign Affairs and International Co-operation
3. Emiratisation is a top priority that will have a renewed push behind it
4. The UAE's economy must continue to thrive and grow
5. Complaints from the public must be addressed, not avoided
6. Have hope for the future, what is yet to come is bigger and better than before
Specs
Engine: Dual-motor all-wheel-drive electric
Range: Up to 610km
Power: 905hp
Torque: 985Nm
Price: From Dh439,000
Available: Now
UAE currency: the story behind the money in your pockets
Killing of Qassem Suleimani
Key facilities
- Olympic-size swimming pool with a split bulkhead for multi-use configurations, including water polo and 50m/25m training lanes
- Premier League-standard football pitch
- 400m Olympic running track
- NBA-spec basketball court with auditorium
- 600-seat auditorium
- Spaces for historical and cultural exploration
- An elevated football field that doubles as a helipad
- Specialist robotics and science laboratories
- AR and VR-enabled learning centres
- Disruption Lab and Research Centre for developing entrepreneurial skills
Marathon results
Men:
1. Titus Ekiru(KEN) 2:06:13
2. Alphonce Simbu(TAN) 2:07:50
3. Reuben Kipyego(KEN) 2:08:25
4. Abel Kirui(KEN) 2:08:46
5. Felix Kemutai(KEN) 2:10:48
Women:
1. Judith Korir(KEN) 2:22:30
2. Eunice Chumba(BHR) 2:26:01
3. Immaculate Chemutai(UGA) 2:28:30
4. Abebech Bekele(ETH) 2:29:43
5. Aleksandra Morozova(RUS) 2:33:01
Spider-Man: No Way Home
Director: Jon Watts
Stars: Tom Holland, Zendaya, Jacob Batalon
Rating:*****
More from Rashmee Roshan Lall
How to play the stock market recovery in 2021?
If you are looking to build your long-term wealth in 2021 and beyond, the stock market is still the best place to do it as equities powered on despite the pandemic.
Investing in individual stocks is not for everyone and most private investors should stick to mutual funds and ETFs, but there are some thrilling opportunities for those who understand the risks.
Peter Garnry, head of equity strategy at Saxo Bank, says the 20 best-performing US and European stocks have delivered an average return year-to-date of 148 per cent, measured in local currency terms.
Online marketplace Etsy was the best performer with a return of 330.6 per cent, followed by communications software company Sinch (315.4 per cent), online supermarket HelloFresh (232.8 per cent) and fuel cells specialist NEL (191.7 per cent).
Mr Garnry says digital companies benefited from the lockdown, while green energy firms flew as efforts to combat climate change were ramped up, helped in part by the European Union’s green deal.
Electric car company Tesla would be on the list if it had been part of the S&P 500 Index, but it only joined on December 21. “Tesla has become one of the most valuable companies in the world this year as demand for electric vehicles has grown dramatically,” Mr Garnry says.
By contrast, the 20 worst-performing European stocks fell 54 per cent on average, with European banks hit by the economic fallout from the pandemic, while cruise liners and airline stocks suffered due to travel restrictions.
As demand for energy fell, the oil and gas industry had a tough year, too.
Mr Garnry says the biggest story this year was the “absolute crunch” in so-called value stocks, companies that trade at low valuations compared to their earnings and growth potential.
He says they are “heavily tilted towards financials, miners, energy, utilities and industrials, which have all been hit hard by the Covid-19 pandemic”. “The last year saw these cheap stocks become cheaper and expensive stocks have become more expensive.”
This has triggered excited talk about the “great value rotation” but Mr Garnry remains sceptical. “We need to see a breakout of interest rates combined with higher inflation before we join the crowd.”
Always remember that past performance is not a guarantee of future returns. Last year’s winners often turn out to be this year’s losers, and vice-versa.
What went into the film
25 visual effects (VFX) studios
2,150 VFX shots in a film with 2,500 shots
1,000 VFX artists
3,000 technicians
10 Concept artists, 25 3D designers
New sound technology, named 4D SRL
MATCH INFO
Barcelona 5 (Lenglet 2', Vidal 29', Messi 34', 75', Suarez 77')
Valladolid 1 (Kiko 15')
Labour dispute
The insured employee may still file an ILOE claim even if a labour dispute is ongoing post termination, but the insurer may suspend or reject payment, until the courts resolve the dispute, especially if the reason for termination is contested. The outcome of the labour court proceedings can directly affect eligibility.
- Abdullah Ishnaneh, Partner, BSA Law
Global Fungi Facts
• Scientists estimate there could be as many as 3 million fungal species globally
• Only about 160,000 have been officially described leaving around 90% undiscovered
• Fungi account for roughly 90% of Earth's unknown biodiversity
• Forest fungi help tackle climate change, absorbing up to 36% of global fossil fuel emissions annually and storing around 5 billion tonnes of carbon in the planet's topsoil
Ain Issa camp:
- Established in 2016
- Houses 13,309 people, 2,092 families, 62 per cent children
- Of the adult population, 49 per cent men, 51 per cent women (not including foreigners annexe)
- Most from Deir Ezzor and Raqqa
- 950 foreigners linked to ISIS and their families
- NGO Blumont runs camp management for the UN
- One of the nine official (UN recognised) camps in the region
UAE currency: the story behind the money in your pockets
F1 The Movie
Starring: Brad Pitt, Damson Idris, Kerry Condon, Javier Bardem
Director: Joseph Kosinski
Rating: 4/5
