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The US Economic Recovery Probably Depends On A Quick-Witted Fed

U.S. Job Market: Workers Push for $80,000 Minimum Salary as Economic Expectations Rise (Photo: What After College)
U.S. Job Market: Workers Push for $80,000 Minimum Salary as Economic Expectations Rise (Photo: What After College)

The last three U.S. economic expansions were ended by pandemics, stock market crashes, and housing crashes.

However, given the ongoing argument among American central bankers about when to cut the restrictive interest rates meant to combat inflation, which appears to be steadily declining, the Federal Reserve may be the biggest risk facing a robust economy at the moment.

Higher Employment Growth

Fed officials have hinted at a potential shift to lower interest rates later this year in order to avoid placing undue pressure on an economy that is exceeding projections but, many analysts fear, has grown overly reliant on household spending that is exhibiting signs of stress and on job growth in a limited range of industries.

After seven months of annualised inflation falling short of the Federal Reserve’s 2% target, some formulas cited by officials indicate that rate decreases are likely to occur shortly. Meanwhile, analysts have started pointing out the dangers that the Fed could miss a potential slowdown or fail to take into consideration the possibility that the economy could be able to sustain higher employment and faster growth than anticipated in the absence of a fresh price spike.

Based On Contradicting Data

Economic

(PHOTO: WirtschaftsWoche)

At the conclusion of a two-day policy meeting on Wednesday, the Fed is anticipated to maintain its benchmark overnight interest rate in the range of 5.25%–5.50% for the fourth time since July. Any indication from Fed Chair Jerome Powell in a policy statement or from the Fed itself would be more noteworthy.

Although the unemployment rate hasn’t moved much in the past two years (it was 3.7% in December), inflation has decreased despite this, as the economy is still growing faster than what is thought to be inflationary. Despite a slowdown in inflation, output grew at a 3.3% annual rate in the fourth quarter. The personal consumption expenditures price index, the Fed’s favoured inflation gauge, increased at a mere 1.9% annualised rate from June to December.

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