U.S. economy grew by 5.7 percent last year

The nation’s gross domestic product has bounced back from the 2020 coronavirus recession

The U.S. economy grew last year at its fastest pace since 1984, rebounding from a sharp but brief coronavirus-induced recession in March 2020.

The nation’s gross domestic product, a measure of all goods and services produced, expanded by 5.7 percent in 2021, the Commerce Department reported Thursday. Growth accelerated even faster during the period from October to December, rising to 6.9 percent on annualized basis.

With inflation running hot and Covid-19 cases from the highly contagious omicron variant filling overworked hospitals and keeping workers at home, the economy is expected to grow at a slower rate in 2022. Economists have already slashed their forecasts for the first quarter, due to the impact of omicron.

https://www.nbcnews.com/

Stocks Turn Lower After Fed Announcement on Interest Rates

Federal Reserve plans to raise rates in March

Stocks staged another late-day reversal Wednesday, giving up their gains and adding to the week’s breathtaking volatility after the Federal Reserve signaled that interest hikes are indeed around the corner.

After trading higher most of the day, the Dow Jones industrial average shed more than 600 points following the Fed’s policy announcement. It cut some of its losses to settle at 34,168.09, down 129.64 points, or about 0.4 percent. A day earlier, the blue-chip index limped out of a tumultuous session that saw it stage a more than 1,000-point comeback and still close in the red.

The S&P 500 index, battered in five of the last six trading sessions, also turned negative and ended the day with a 6.52-point decline, or 0.2 percent, to 4,349.93. The tech-heavy Nasdaq composite index, which has taken steep losses as investors rotated away from pricey stocks that have been pandemic favorites, eked out a 2.82-point advance, or 0.02 percent, to settle at 13,542.12.

In its post-meeting statement, the central bank cautioned that “the path of the economy continues to depend on the course of the virus.” The pandemic has created a vexing set of supply and demand constraints that have pushed inflation to a 40-year high, and the Fed noted that it will “soon be appropriate” to start raising rates, but stopped short to taking immediate action.

https://www.washingtonpost.com/

The Federal Reserve is anticipating multiple rate hikes in 2022

99% of employers planning raises

More than half of U.S. states are raising minimum wages next year, but employers are moving even faster on pay increases.

Salary budget increases set by employers for 2022 are higher than they have been in at least a decade, with 99% of employers planning raises and many planning increases of 5% to 6% in 2022, according to compensation consulting firm surveys. Deloitte’s fourth quarter CFO Signals survey funds 97% of CFOs saying that labor costs will increase substantially in 2022.

Top companies are aggressively fighting for talent and fighting their own employees’ demands for higher pay to fight inflation. Apple is reportedly even paying rare $180,000 stock bonuses to keep engineers for going to tech rivals.

But while the Federal Reserve says wage inflation is a factor to monitor in 2022, it is not a primary inflation driver yet.

Some economists aren’t as sure as the central bank that rising pay isn’t already contributing to what is known as a wage-price spiral, a labor market dynamic in which wage inflation leads to higher prices, and higher prices lead to calls for even higher pay.

https://www.cnbc.com/

Inflation hit a fresh 39-year high in December

Consumer prices jump 7% in 2021

Another month, another record-setting leap in prices.

Inflation hit a fresh 39-year high in December as a drop in energy costs wasn’t enough to offset a steady march upward for staples such as food, rent and cars amid stubborn supply-chain bottlenecks and worker shortages.

The consumer price index jumped 7% last year, the fastest pace since 1982, the Labor Department said Wednesday. That’s up from 6.8% annually in November, which was also a nearly four-decade high. COVID-19’s fast-spreading omicron variant likely intensified the price increases by spawning more worker absences in global delivery networks and slowing shipments, says Wells Fargo economist Sam Bullard. That more than erased any easing of demand and prices in COVID-19-sensitive industries like travel, Bullard says.

https://eu.usatoday.com/

Omicron variant and inflation, 2 concerns of the week

This week, investors are set to focus on updates on the Omicron variant and inflation. Concerns around both of these factors had stirred up volatility across markets last week.  The two are intertwined. Many have feared that an additional wave of the coronavirus could spur another slowdown in consumer mobility and spending that hits economic activity and corporate earnings. Vaccine-makers and other researchers have yet to determine the extent of Omicron’s transmissibility and severity of illness caused by the variant, or whether it is at least partially resistant to current vaccines.

And yet despite these virus-related fears, monetary policymakers have signaled they are ready to pull back on monetary policy stimulus that had helped support the economy for more than a year-and-a-half during the pandemic. That’s come as inflationary trends have proven stickier than previously expected, given tighter monetary policies could help ease elevated prices.

Investors are set to receive an updated look at the state of inflation later this week, with the Labor Department releasing its November Consumer Price Index (CPI) on Friday. Though the Federal Reserve has typically looked to the core personal consumption expenditures (PCE) index as its preferred gauge of inflation, the CPI has served as another critical datapoint underscoring the extent of price increases impacting Main Street consumers.

https://finance.yahoo.com/

Soaring Energy Prices Drive UK Inflation To 10-Year High

Well ahead of the Bank of England target of 2.0 percent inflation

High energy prices drove inflation in the UK to a 10-year high of 4.2 percent in October, and energy is expected to fuel additional price hikes next year when the energy regulator is set to raise the so-called price cap. The UK has a so-called Energy Price Cap in place, which protects households from too high bills by capping the price that providers can pass on to them, but which additionally burdens energy providers.

The Consumer Prices Index (CPI) in the UK rose by 4.2 percent in the 12 months to October 2021, up from 3.1 percent in September, the Office for National Statistics said on Wednesday. The October inflation rate was well ahead of the Bank of England target of 2.0 percent inflation, which raises the odds of the central bank raising interest rates in December.

Last month, “the main upward pressure came from electricity, gas and other fuels, which contributed 0.59 percentage points to the CPIH 12-month inflation rate,” the Office for National Statistics said today.

https://oilprice.com/

US: The cost of living rises 6.2% – its highest level in 31 years

Biden says reversing rampant inflation is a ‘top priority’

President Joe Biden has vowed to make reversing the country’s rising inflation a ‘top priority,’ after the Consumer Price Index revealed inflation is at its highest level in 31 years.

The president has blamed the 6.2 percent increase in the cost of living on ‘market manipulation’ and ‘price gouging,’ despite the nation’s top economists pointing to the country’s supply-chain shortages and businesses struggling to meet the demand from COVID shutdowns as the reason for the rise in prices.

Biden said in a statement on Wednesday his $1.2 trillion Build Back Better plan will help slow the growing inflation problem and Treasury Secretary Janet Yellen has vowed inflation will not reach the exorbitant levels they were at during the Carter years, even as household debt increases to a record high.

https://www.dailymail.co.uk/

Stock Market Risks Pile Up

The gap between ordering a chip and delivery is still growing

Delta cases. Inflation. Fed tapering. China’s crackdown. These are among the reasons why investors could soon get more nervous about this stock market.

The S&P 500 hit another record on Friday after Jerome Powell’s dovish taper speech reassured investors. However, the mood seems more cautious compared with a few weeks ago, when companies were in the middle of a record-setting earnings season.

All the concerns boil down to one big debate: Has the recovery from the pandemic already peaked? That’s a question that will only be answered in the months ahead. For now, investors say they’re scouring through management commentary and economic data for any hint about what’s to come.

https://finance.yahoo.com/

U.K. Wage Growth Hits a Record

Vacancies Pass 1 Million

U.K. wage growth hit a record as companies posted more than 1 million new job vacancies for the first time in an unprecedented scramble for staff following the loosening of lockdown rules.

Average earnings in the three months through June surged a record 8.8% from a year earlier, the Office for National Statistics said Tuesday. While the figure partly reflects distortions created by the pandemic, underlying wage pressures are also gathering pace.

The pickup underscores the scale of the recovery from the deepest economic slump in 300 years. Although the Bank of England expects strains in the labor market to prove temporary, policy makers warned this month that meeting the 2% inflation target will require a modest withdrawal of monetary stimulus.

https://www.bloomberg.com/

UK inflation hits 2.1%

Inflation vaults past Bank of England target

British inflation unexpectedly jumped above the Bank of England’s target in May when it hit 2.1%, part of a post-lockdown climb in prices that is expected gather pace. The acceleration of the consumer price index from April’s 1.5% largely reflected how weak inflation was in May 2020 when the economy was reeling from its first tight lockdown. The figure represented the first time inflation has gone above the BoE’s 2% target in almost two years and was above all 33 forecasts in a Reuters poll of economists which had pointed to a rise in inflation to 1.8%.

Yields on British government bonds rose early on Wednesday with the yield on two-year gilts – which are sensitive to speculation about BoE policy moves – briefly touching their highest in nearly a month. Investors around the world are assessing the risks of a sustained jump in prices, especially in the United States where annual inflation hit 5.0% in May, the highest in almost 13 years, and where President Joe Biden has proposed a $6 trillion stimulus package.

https://www.reuters.com/

The Consumer Price Index for April rose 4.2%

Stocks already lower

Red-hot consumer inflation data for April spooked markets and raised concerns that the Fed is wrong about rising prices being just temporary. If the Fed is incorrect, that means that it could begin to unwind its easy policies quicker than expected and ultimately raise interest rates.

The Consumer Price Index for April rose 4.2% from a year ago, the briskest pace since September 2008. Economists had expected a big number, of 3.6%, because of base effects accounting for last year’s weakness. But the CPI’s surge took markets by surprise, sending Treasury yields higher and stocks lower.

The CPI measures a basket of goods and energy and housing costs. Excluding food and energy, core CPI increased by 3% year over year and 0.9% on a monthly basis, compared with respective estimates of 2.3% and 0.3%. Stocks, already lower, buckled under the inflation worry when the Labor Department released its report at 8:30 a.m. ET Wednesday. Tech slumped and the losses on the Nasdaq accelerated. The index was down 2% in afternoon trading, while the S&P 500 was off 1.6%.

https://www.cnbc.com/

 

Yellen Says U.S. Inflation Risk Remains Small, Manageable

Yellen said that the US could see full employment next year

Treasury Secretary Janet Yellen said U.S. inflation risks remain subdued as the Biden administration pumps $1.9 trillion in pandemic relief into the economy and a return to full employment comes into view. “Is there a risk of inflation? I think there’s a small risk and I think it’s manageable,” Yellen said on ABC’s “This Week” on Sunday. Some prices that fell last year when the Covid-19 pandemic spread through the U.S. will recover, “but that’s a temporary movement in prices,” she said.

“I don’t think it’s a significant risk,” said Yellen, a former Federal Reserve chair. “And if it materializes, we’ll certainly monitor for it but we have tools to address it.”

Biden on Thursday signed into law the pandemic relief package, which provides funding for vaccinations and delivering aid to households, businesses and state and local governments. Yellen and other officials insist the aid – which comes on top of pandemic relief passed by Congress last year — is badly needed for an economy slammed by Covid-19, particularly low-income workers heavily represented in service industries, despite signs of recovery.

https://www.bnnbloomberg.ca/

The inflation risk from Joe Biden’s stimulus plan is exaggerated

The challenge is to fight the economic crisis by raising demand

Rising US bond yields show that financial markets fear Joe Biden’s $1.9tn fiscal package may stimulate the US economy too much and lead to unwanted inflation. But will it? Although the US president’s stimulus package seems massive, it consists of several parts, each with a different economic impact. Nearly 40 per cent of the package, or $750bn, will be used to aid mass inoculations and fund states and local governments. This will not produce much of a boost to gross domestic product, although additional funding for local governments could reduce additional lay-offs, which is a positive.

About $1tn will meanwhile be used for direct income subsidies to households in the forms of rebate cheques, child tax credits and higher unemployment benefits. There is also $150bn of financial aid for vulnerable businesses. Overall, household and business subsidies total $1.15tn, although the size of the final package could be trimmed somewhat because of the resistance by Senate Republicans.

https://www.ft.com/