Monetary Policy & Inflation | Rates | US
The economy is in a much better place now versus the peak shock after the coronavirus lockdowns in early 2020. But still, renewed lockdowns, although more targeted in nature, will likely dampen the recovery for some time yet. The recently passed stimulus in December will provide a much-needed boost. But given how long it took to get in place, there has been some damage done to aggregate demand and household confidence coming into the first quarter of 2021. This calls for continued caution, for now.
That said, the Fed must balance this near-term drag on growth, and the bumps on the road to recovery, with an open mind given that a ton of fiscal stimulus was put into the system (with the prospect of more being thrown in for good measure). That, along with ongoing Fed easing, has primed the pump for a potentially very strong 2H21. In addition, the vaccine rollouts are picking up steam, and herd immunity might not be far off. So, let’s say it’s time to be cautiously optimistic.
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