The U.S. Economic Outlook Kevin L. Kliesen Business Economist and Research Officer Federal Reserve Bank of St. Louis
GIC Executive Briefing: 2021 Macroeconomic Outlook (webinar) January 14, 2021 1
Disclaimer The views I will express today are my own and do not necessarily reflect the positions of the Federal Reserve Bank of St. Louis or the Federal Reserve System. 2
The Big Picture • Two major global shocks over the past dozen years. • The shift from pandemic dynamics to vaccine dynamics is underway. The speed of the shift seems slow.
• A new Administration with different economic policies. • Most economists expect much stronger economic
conditions in 2021-22; some see much higher inflation. 3
What’s Going on Now? • As we enter 2021, the outlook is brightening. Still, . . . • Rising COVID case counts, hospitalizations, and fatalities have spawned renewed restrictions.
• The December employment report was jarring. A huge decline in leisure & hospitality jobs.
• Mixed signals on the consumption front. November was weak; December looked better but waiting on the data.
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What’s Going on Now? • Other parts of the economy look pretty good—in particular, manufacturing and housing.
• Additional fiscal support is likely; the Fed is probably on the sidelines for the foreseeable future.
• Euphoria: Vaccines and exuberant financial markets. • So, there is a tug of war: Forces leading to more weakness vs. forces leading to more strength.
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Uncertainty: It’s High!
NOTE: An index value of 100 is defined to be “average.” 6
The 2021 Narrative in a Nutshell • A unique recession, so a unique recovery is likely. • Vaccine dynamics likely to spur rapid growth in output and employment over the last 6-9 months of 2021.
• Rapid growth, larger budget deficits, and the Fed’s new policy framework could spur higher inflation and raise inflation expectations. But remember Milton Friedman.
• These factors will likely raise market interest rates. 7
Money to Burn Household Time and Savings Deposits Billions of dollars 12,000
If savings returns to its previous trend, then dissaving would equal about $875 billion— enough to boost consumer spending by about 6%.
11,000
10,000
9,000
8,000
2012:Q1 to 2019:Q4 Trend
7,000
6,000
2012
2013
2014
2015
2016
2017
The boost to GDP would be 3% to 4%. 2018
2019
2020
SOURCE: Haver Analytics and Board of Governors (Flow of Funds) NOTE: Value for 2020:Q4 is projected.
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FOMC: 2021-22 Looks Promising December 2020 FOMC Economic Projections Percent
10.0 8.0
6.7
6.0
5.0
4.2
4.0
3.2
2.0
2020
2021
2022
Longer run
4.2 4.1
1.8
1.2
1.8 1.9 2.0
0.0 -2.0 -4.0
-2.4 Real GDP
Unemployment Rate
PCEPI Inflation
NOTE: FOMC Projections are the median estimates of FOMC participants. The unemployment rate is the average of the fourth-quarter for the year indicated.
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The Vaccination Pace: Kind of Slow COVID-19 Vaccinations in the United States: Doses Administered per 100 People 21
At this pace, 50% of the populace will be vaccinated in early Sept.
18 15 12
Actual
Dec 19 - Jan 5
Jan. 5 - Present
9 6 3 0 12/15/2020
1/5/2021
1/26/2021
2/16/2021
3/9/2021
3/30/2021
NOTE: Total number of vaccination doses administered per 100 people in the total population. This is counted as a single dose, and may not equal the total number of people vaccinated, depending on the specific dose regime (e.g. people receive multiple doses). SOURCE: University of Oxford/Haver Analytics and author's projections
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Inflation Expectations Are Rising WTI Spot Prices, 5-Year Breakeven Inflation Expectations and Inflation Swaps 2.5
$80
FOMC, 12/16/2020 2.0
$60
Infl. Swaps 5Y (Left) 1.5
Infl. Expectations 5Y (Left)
$40
Spot WTI (Right)
1.0
$20
0.5
0.0 Jan-19
Apr-19
Jul-19
Oct-19
NOTE: Spot WTI closed at -$36.98 on April 20, 2020.
Jan-20
Apr-20
Jul-20
Oct-20
Jan-21
$0
Source: Federal Reserve Board, Bloomberg, Haver
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QUESTIONS?
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