Economic Analysis and Policy Outlook of U.S. in July 2021
Conclusions
According to the latest data, the impact of the COVID-19 pandemic on the U.S. economy has reached the middle and late stages. American people are seeking retaliatory consumption of travel. Supply chain bottleneck sees no improvement. Prices are rising rapidly in the short term, with the CPI up by 5.3% year on year in June. However, the factors affecting inflation are still temporary. The PCE deflator was up by 1.9% year on year in May, suggesting that a long-term inflation trend is unlikely to occur. The job market has recovered much better than expected, with the number of job vacancies at a record high level, but the modest rather than rapid increase in wages does not constitute the basis for long-term high inflation. We therefore expect Federal Reserve System (the Fed) to leave the federal funds rate unchanged at its meeting in July. The U.S. labor productivity surged to 4.3% in the wake of the pandemic. If the increasing trend continues, it will indicate that the U.S. fundamentals are relatively strong and the U.S. dollar is expected to appreciate, making U.S. dollar assets favored by investors. Weaker emerging market economies need to be wary of financial risks such as capital outflows brought by a strong U.S. recovery next year.
