The US economy unexpectedly contracted in the first quarter amid a resurgence in COVID-19 cases and drop in pandemic relief money from the government, but the decline in output is misleading as domestic demand remained strong.

US economy shrinks in first quarter of 2022

The US Federal Reserve announced a 0.25 percent hike in its bench-mark short-term interest rate, launching a campaign to tackle the fastest inflation in four decades even as risks to economic growth mount.

US Fed lifts policy rate by 0.25%

Federal Reserve officials are coalescing around a plan to raise interest rates steadily starting in March and then move swiftly to shrink the central bank’s big bond holdings as policymakers look to cool the economy at a moment of rapid inflation.

Policymakers have spent the past week broadcasting that the interest rate increase they plan to make at their March meeting — one that investors already fully expect central bankers to make as they try to tame price increases — will be the first in a string of rate moves. Central bankers also appear to be converging on a plan to promptly start shrinking the Fed’s holdings of government-backed debt, which were vastly expanded during the pandemic downturn as the Fed snapped up bonds in a bid to keep markets functioning and cushion the economy.

The central bank bought $120 billion in Treasury and mortgage-backed securities for much of 2020 and 2021, but officials have been tapering those purchases and are on track to stop them entirely in March. By quickly pivoting to allow securities on its now nearly $9 trillion balance sheet to expire without reinvestment — reducing its holdings over time — the central bank would take away an important source of demand for government-backed debt and push rates on those securities higher. That would work together with a higher Fed policy interest rate to make many types of borrowing more expensive.

Higher borrowing costs should weigh on lending and spending, tempering demand and helping to slow price gains, which have been uncomfortably rapid. Fresh data out this week is expected to show further acceleration in the central bank’s preferred inflation gauge, which is already running at its fastest pace in 40 years.

Lael Brainard, a Fed governor who has been nominated by President Joe Biden to serve as vice chair, said last week that she believed a “series” of rate increases were warranted.

“I do anticipate that it will be appropriate, at our next meeting, which is in just a few weeks, to initiate a series of rate increases,” she said Friday at a forum held by the University of Chicago’s Booth School of Business in New York. Brainard said that the Fed would then turn to shrinking its balance sheet, a process that could be appropriate to start “in coming meetings.”

Michelle Bowman, another Fed governor, echoed that balance sheet reduction could start imminently, saying in a speech Monday that the Fed needs to begin to reduce the size of its bond holdings “in the coming months.”

The precise timing of balance sheet shrinking is a topic of debate. John Williams, president of the Federal Reserve Bank of New York, suggested Friday that the process could start “later this year,” which could suggest in coming months or slightly later. But officials have been uniformly clear that a pullback is coming — and likely more quickly than investors had expected until just recently.

Although Fed policymakers plan to shrink their holdings of Treasury bonds and mortgage-backed securities by allowing securities to expire without reinvesting them, rather than by actively selling the debt, the central bank’s latest meeting minutes suggested that officials could eventually move to outright sales of mortgage-tied securities. The minutes also suggested that officials thought “a significant reduction” in the size of the balance sheet would be warranted.

The central bank’s planned moves would be a rapid pace of change compared to the last time they increased interest rates, from 2015 to the end of 2018. Then, officials shrank the balance sheet only gradually and pushed up interest rates glacially, once per quarter at fastest.

Borrowing costs have already begun to rise as investors adjust to the Fed’s more rapid-fire plans. Markets expect six or seven quarter-point interest rate increases this year. The rate on a 30-year mortgage has climbed from about 2.9% last fall — when the Fed began its policy pivot — to 3.9% now.

The Fed’s policy changes “will bring inflation down over time, while sustaining a recovery that includes everyone,” Brainard said, adding that as the Fed signals that it will raise rates, “the market is clearly aligned with that.”

Yet with inflation rapid, wage growth strong and signs of taut labour market conditions plentiful, some Fed officials worry that the central bank needs to move even more quickly.

Bowman, for instance, said she was still open to a half-percentage point increase in March — something her colleague James Bullard, president of the Federal Reserve Bank of St. Louis, has also suggested.

“I will be watching the data closely to judge the appropriate size of an increase at the March meeting,” Bowman said.

But Bullard, who has repeatedly said he would prefer to see rates rise by a full percentage point of rate increases by July, has also noted that he would defer to the chair, Jerome Powell, on the size of the initial increase. And other members of the Fed’s policy-setting committee have suggested that they do not think starting with a half-point increase is necessary, suggesting that a smaller increase may be more likely.

“There’s really no kind of compelling argument that you have to be faster right in the beginning,” Williams, president of the powerful Federal Reserve Bank of New York, told reporters last week.

Federal Reserve officials are coalescing around a plan to raise interest rates steadily starting in March and then move swiftly to shrink the central bank’s big bond holdings as policymakers look to cool the economy at a moment of rapid inflation.

Federal Reserve officials are coalescing around a plan to raise interest rates steadily starting in March and then move swiftly to shrink the central bank’s big bond holdings as policymakers look to cool the economy at a moment of rapid inflation. Policymakers have spent the past week broadcasting that the interest rate increase they plan to make at their March meeting — one that investors already fully expect central bankers to make as they try to tame price increases — will be the first in a string of rate moves. Central bankers also appear to be converging on a plan to promptly start shrinking the Fed’s holdings of government-backed debt, which were vastly expanded during the pandemic downturn as the Fed snapped up bonds in a bid to keep markets functioning and cushion the economy. The central bank bought $120 billion in Treasury and mortgage-backed securities for much of 2020 and 2021, but officials have been tapering those purchases and are on track to stop them entirely in March. By quickly pivoting to allow securities on its now nearly $9 trillion balance sheet to expire without reinvestment — reducing its holdings over time — the central bank would take away an important source of demand for government-backed debt and push rates on those securities higher. That would work together with a higher Fed policy interest rate to make many types of borrowing more expensive. Higher borrowing costs should weigh on lending and spending, tempering demand and helping to slow price gains, which have been uncomfortably rapid. Fresh data out this week is expected to show further acceleration in the central bank’s preferred inflation gauge, which is already running at its fastest pace in 40 years. Lael Brainard, a Fed governor who has been nominated by President Joe Biden to serve as vice chair, said last week that she believed a “series” of rate increases were warranted. “I do anticipate that it will be appropriate, at our next meeting, which is in just a few weeks, to initiate a series of rate increases,” she said Friday at a forum held by the University of Chicago’s Booth School of Business in New York. Brainard said that the Fed would then turn to shrinking its balance sheet, a process that could be appropriate to start “in coming meetings.” Michelle Bowman, another Fed governor, echoed that balance sheet reduction could start imminently, saying in a speech Monday that the Fed needs to begin to reduce the size of its bond holdings “in the coming months.” The precise timing of balance sheet shrinking is a topic of debate. John Williams, president of the Federal Reserve Bank of New York, suggested Friday that the process could start “later this year,” which could suggest in coming months or slightly later. But officials have been uniformly clear that a pullback is coming — and likely more quickly than investors had expected until just recently. Although Fed policymakers plan to shrink their holdings of Treasury bonds and mortgage-backed securities by allowing securities to expire without reinvesting them, rather than by actively selling the debt, the central bank’s latest meeting minutes suggested that officials could eventually move to outright sales of mortgage-tied securities. The minutes also suggested that officials thought “a significant reduction” in the size of the balance sheet would be warranted. The central bank’s planned moves would be a rapid pace of change compared to the last time they increased interest rates, from 2015 to the end of 2018. Then, officials shrank the balance sheet only gradually and pushed up interest rates glacially, once per quarter at fastest. Borrowing costs have already begun to rise as investors adjust to the Fed’s more rapid-fire plans. Markets expect six or seven quarter-point interest rate increases this year. The rate on a 30-year mortgage has climbed from about 2.9% last fall — when the Fed began its policy pivot — to 3.9% now. The Fed’s policy changes “will bring inflation down over time, while sustaining a recovery that includes everyone,” Brainard said, adding that as the Fed signals that it will raise rates, “the market is clearly aligned with that.” Yet with inflation rapid, wage growth strong and signs of taut labour market conditions plentiful, some Fed officials worry that the central bank needs to move even more quickly. Bowman, for instance, said she was still open to a half-percentage point increase in March — something her colleague James Bullard, president of the Federal Reserve Bank of St. Louis, has also suggested. “I will be watching the data closely to judge the appropriate size of an increase at the March meeting,” Bowman said. But Bullard, who has repeatedly said he would prefer to see rates rise by a full percentage point of rate increases by July, has also noted that he would defer to the chair, Jerome Powell, on the size of the initial increase. And other members of the Fed’s policy-setting committee have suggested that they do not think starting with a half-point increase is necessary, suggesting that a smaller increase may be more likely. “There’s really no kind of compelling argument that you have to be faster right in the beginning,” Williams, president of the powerful Federal Reserve Bank of New York, told reporters last week.

US Fed officials firm up plans for a swift pullback of economic help

President Joe Biden is contending with an uncomfortable disconnect: The economy grew at the fastest pace since 1984 last year, but voters are downright pessimistic about economic conditions and their own financial prospects.

The divide traces back to the lingering pandemic and high prices, economists said. Inflation is running at its fastest pace since 1982, eroding gains and eating away paychecks as even robust wage increases struggle to keep pace. And despite vaccines, life has yet to return to normal in the way many people once expected.

The disparity poses a significant challenge for Biden and his party before the November midterm elections. Faltering consumer confidence in the economy — and Biden’s handling of it — could be a liability as Democrats battle to keep control of both the House and Senate.

Biden and his top advisers are trying to turn attention toward the positives: emphasising how rapidly the economy has recovered and that wages are rising, and hailing efforts to fix snarled supply chains and rebuild domestic manufacturing.

“We are finally building an American economy for the 21st century, with the fastest economic growth in nearly four decades, along with the greatest year of job growth in American history,” Biden said in a statement following the release of gross domestic product data Thursday.

But inflation has complicated that narrative.

The new GDP figures show that the economy has more than fully recovered from its pandemic hit, but a big chunk of that progress evaporates when you factor in recent price gains. In fact, growth is still falling short of its pre-pandemic trend after it is adjusted for inflation.

The bite that inflation is taking out of the recovery is palpable in everyday life. Workers are seeing their wages rise at the fastest pace in decades — but as they have to shell out more for couches, used cars, steaks and frozen chicken, many are finding that today’s bigger paycheck does not go as far as last year’s smaller one. While the unemployment rate has dropped much faster than almost anyone predicted, millions remain on its sidelines as child care issues and coronavirus fears persist.

“It’s kind of hard to be cheerful when there’s still a pandemic raging,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics. Plus, “pocketbook issues really are important.”

The contrast between how the economy is doing on paper and how it feels on the ground has made it difficult for Biden to capitalize politically on what has been, by most measures, a historically strong economic recovery even after accounting for rising prices.

Biden might take some comfort from the last president to experience a similar combination of strong growth and rapid inflation: Ronald Reagan. Reagan, too, faced an economy struggling with rising prices and snarled supply lines early in his term. He, too, initially struggled to convince Americans that the economy was on the upswing. Yet in 1984, his message of “morning in America” carried him to a landslide reelection victory.

There are important differences. Reagan took office near the peak of the “Great Inflation” of the late 1970s and early 1980s, when interest rates were very high; by 1984, price growth and borrowing costs both had moderated. Economic growth also accelerated near the end of Reagan’s first term, whereas now most forecasters expect growth to slow as the post-pandemic boom fades. And Reagan ran for reelection in an era when views of the economy were much less divided along partisan lines than they are today.

The conundrum Biden is facing shows clearly in polling and survey numbers.

A Gallup survey conducted this month found that Americans view the economy more negatively than positively: Only 29% said the economy was improving, while 67% believed it was getting worse.

Consumer expectations data produced by the Federal Reserve Bank of New York has shown that a high share of consumers expect to be financially worse off a year from now: 26.3% in December, compared to 9.9% at the end of 2019, before the onset of the coronavirus. That change has come as inflation expectations tracked by the same survey have surged.

Part of the gloominess inevitably ties back to the long-lasting pandemic. While people harbored hope that the economy would reopen and ordinary life would resume once vaccines were readily available, continued waves of infection have prevented that from happening.

“There was a lot of optimism a year ago,” said Karen Dynan, a Harvard economist and former Treasury official in the Obama administration. “We’d gotten the vaccines faster than we’d thought, and we thought our lives were going to be able to go back to normal, and people just expected the economy to come along with that. And maybe that was a little naive.”

Getting voters to feel like they are benefiting from recent progress toward restoring the economy probably hinges on two things: bringing the pandemic under control and bringing inflation to heel.

Price gains are expected to fade this year, partly on their own and partly as a result of fiscal and monetary policy. While Congress and the White House pumped a lot of money into the economy last year in the form of expanded unemployment insurance, one-time checks and other benefits, that support is waning, which means that consumers will have less new money in their pockets to spend this year. As demand slackens, it may allow beleaguered supply chains to catch up.

The Federal Reserve is also preparing to raise interest rates, signalling that an initial increase is coming at its meeting in March; it has already begun to pull back its additional support for the economy. Higher borrowing costs should further cool off consumer and business demand, slowing hiring and wage growth in the process.

The trouble for the administration is that if the Fed slows down the economy drastically in its bid to tame inflation, voters may not end up happier: Fast growth and fast inflation and slow growth and slow inflation may both prove to be bad outcomes, from a worker’s perspective.

“Nirvana would be strong growth and low inflation,” said Nela Richardson, chief economist at ADP, the payroll processor and employment data provider. “That would be harder to pull off.”

Policymakers hope that the Fed will be able to engineer what economists call a “soft landing,” stabilizing prices while also managing to keep the job market relatively strong and growth chugging along steadily.

Yet economists have warned that accomplishing that could be a challenge, and the timeline may clash with America’s political cycle. Price gains are expected to begin to moderate by November, but high costs may not have completely evaporated by then.

The Fed projected in December that inflation would be running at about 2.6% by the end of this year, down sharply from the current pace — it is expected to come in at 5.8% in a report set for release Friday — but still above the central bank’s 2% goal.

The Fed is not partisan and operates independently of the White House. But its policies can affect political outcomes.

“The question is, do you want to be in the situation where demand is curtailed and we’re slowing down headed into an election cycle?” Richardson said. “There’s a lot of risk there.”

&nbsp;

And in the meantime, Republicans have been zeroing in on rising prices, blaming the administration’s 2021 relief package and arguing that they detract from economic progress.

“There are real red flags here, with raging inflation, a massive drop in real disposable income and GDP growth driven primarily by a temporary buildup in inventories,” Rep. Kevin Brady, R-Texas, said in a release after the GDP report.

“Given that many Americans have lost confidence in his competency to heal the economy, it’s too soon for President Biden be celebrating, with the challenges workers and families face.”

President Joe Biden is contending with an uncomfortable disconnect: The economy grew at the fastest pace since 1984 last year, but voters are downright pessimistic about economic conditions and their own financial prospects.

President Joe Biden is contending with an uncomfortable disconnect: The economy grew at the fastest pace since 1984 last year, but voters are downright pessimistic about economic conditions and their own financial prospects. The divide traces back to the lingering pandemic and high prices, economists said. Inflation is running at its fastest pace since 1982, eroding gains and eating away paychecks as even robust wage increases struggle to keep pace. And despite vaccines, life has yet to return to normal in the way many people once expected. The disparity poses a significant challenge for Biden and his party before the November midterm elections. Faltering consumer confidence in the economy — and Biden’s handling of it — could be a liability as Democrats battle to keep control of both the House and Senate. Biden and his top advisers are trying to turn attention toward the positives: emphasising how rapidly the economy has recovered and that wages are rising, and hailing efforts to fix snarled supply chains and rebuild domestic manufacturing. “We are finally building an American economy for the 21st century, with the fastest economic growth in nearly four decades, along with the greatest year of job growth in American history,” Biden said in a statement following the release of gross domestic product data Thursday. But inflation has complicated that narrative. The new GDP figures show that the economy has more than fully recovered from its pandemic hit, but a big chunk of that progress evaporates when you factor in recent price gains. In fact, growth is still falling short of its pre-pandemic trend after it is adjusted for inflation. The bite that inflation is taking out of the recovery is palpable in everyday life. Workers are seeing their wages rise at the fastest pace in decades — but as they have to shell out more for couches, used cars, steaks and frozen chicken, many are finding that today’s bigger paycheck does not go as far as last year’s smaller one. While the unemployment rate has dropped much faster than almost anyone predicted, millions remain on its sidelines as child care issues and coronavirus fears persist. “It’s kind of hard to be cheerful when there’s still a pandemic raging,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics. Plus, “pocketbook issues really are important.” The contrast between how the economy is doing on paper and how it feels on the ground has made it difficult for Biden to capitalize politically on what has been, by most measures, a historically strong economic recovery even after accounting for rising prices. Biden might take some comfort from the last president to experience a similar combination of strong growth and rapid inflation: Ronald Reagan. Reagan, too, faced an economy struggling with rising prices and snarled supply lines early in his term. He, too, initially struggled to convince Americans that the economy was on the upswing. Yet in 1984, his message of “morning in America” carried him to a landslide reelection victory. There are important differences. Reagan took office near the peak of the “Great Inflation” of the late 1970s and early 1980s, when interest rates were very high; by 1984, price growth and borrowing costs both had moderated. Economic growth also accelerated near the end of Reagan’s first term, whereas now most forecasters expect growth to slow as the post-pandemic boom fades. And Reagan ran for reelection in an era when views of the economy were much less divided along partisan lines than they are today. The conundrum Biden is facing shows clearly in polling and survey numbers. A Gallup survey conducted this month found that Americans view the economy more negatively than positively: Only 29% said the economy was improving, while 67% believed it was getting worse. Consumer expectations data produced by the Federal Reserve Bank of New York has shown that a high share of consumers expect to be financially worse off a year from now: 26.3% in December, compared to 9.9% at the end of 2019, before the onset of the coronavirus. That change has come as inflation expectations tracked by the same survey have surged. Part of the gloominess inevitably ties back to the long-lasting pandemic. While people harbored hope that the economy would reopen and ordinary life would resume once vaccines were readily available, continued waves of infection have prevented that from happening. “There was a lot of optimism a year ago,” said Karen Dynan, a Harvard economist and former Treasury official in the Obama administration. “We’d gotten the vaccines faster than we’d thought, and we thought our lives were going to be able to go back to normal, and people just expected the economy to come along with that. And maybe that was a little naive.” Getting voters to feel like they are benefiting from recent progress toward restoring the economy probably hinges on two things: bringing the pandemic under control and bringing inflation to heel. Price gains are expected to fade this year, partly on their own and partly as a result of fiscal and monetary policy. While Congress and the White House pumped a lot of money into the economy last year in the form of expanded unemployment insurance, one-time checks and other benefits, that support is waning, which means that consumers will have less new money in their pockets to spend this year. As demand slackens, it may allow beleaguered supply chains to catch up. The Federal Reserve is also preparing to raise interest rates, signalling that an initial increase is coming at its meeting in March; it has already begun to pull back its additional support for the economy. Higher borrowing costs should further cool off consumer and business demand, slowing hiring and wage growth in the process. The trouble for the administration is that if the Fed slows down the economy drastically in its bid to tame inflation, voters may not end up happier: Fast growth and fast inflation and slow growth and slow inflation may both prove to be bad outcomes, from a worker’s perspective. “Nirvana would be strong growth and low inflation,” said Nela Richardson, chief economist at ADP, the payroll processor and employment data provider. “That would be harder to pull off.” Policymakers hope that the Fed will be able to engineer what economists call a “soft landing,” stabilizing prices while also managing to keep the job market relatively strong and growth chugging along steadily. Yet economists have warned that accomplishing that could be a challenge, and the timeline may clash with America’s political cycle. Price gains are expected to begin to moderate by November, but high costs may not have completely evaporated by then. The Fed projected in December that inflation would be running at about 2.6% by the end of this year, down sharply from the current pace — it is expected to come in at 5.8% in a report set for release Friday — but still above the central bank’s 2% goal. The Fed is not partisan and operates independently of the White House. But its policies can affect political outcomes. “The question is, do you want to be in the situation where demand is curtailed and we’re slowing down headed into an election cycle?” Richardson said. “There’s a lot of risk there.” And in the meantime, Republicans have been zeroing in on rising prices, blaming the administration’s 2021 relief package and arguing that they detract from economic progress. “There are real red flags here, with raging inflation, a massive drop in real disposable income and GDP growth driven primarily by a temporary buildup in inventories,” Rep. Kevin Brady, R-Texas, said in a release after the GDP report. “Given that many Americans have lost confidence in his competency to heal the economy, it’s too soon for President Biden be celebrating, with the challenges workers and families face.”

Growth is surging in Biden’s economy, why don’t voters feel better?

According to a poll, Americans listed economic woes over the pandemic as their main concern even as the pandemic continues to sweep the country.

The coronavirus pandemic was listed by just 37 per cent of people as the top five priorities for the government this year. At least 53 per cent of Americans had listed the virus as a major concern last year.&nbsp;

At least 68 per cent of people felt the economy was the biggest concern this year for the Biden administration with inflation being one of the major headaches.

<a href="https://www.wionews.com/world/joe-bidens-disapproval-ratings-hit-record-low-voters-unhappy-with-covid-handling-economy-442394">Also Read:&nbsp;Joe Biden’s disapproval ratings hit record low</a>

Immigration and&nbsp;gun issues were listed as the other major concerns in the poll. The US is set to go in for crucial mid-term polls with&nbsp;President Biden's approval ratings already taking a beating amid the coronavirus crisis.

The US economy has been hit by record unemployment even as the US Federal Reserve had pledged aggressive inflation-fighting measures last month.

Last week the US dollar had suffered its biggest percentage drop in weeks after the disappointing December jobs report.

The economic crisis has been heightened with the new Omicron wave which has further disrupted economic development.

<a href="https://www.wionews.com/world/bidens-winter-covid-plan-is-aimed-at-keeping-the-us-economy-open-433655">Also Read:&nbsp;Biden’s winter Covid plan is aimed at keeping the US economy open</a>

The United States is the worst-hit country due to the virus with over 52 million coronavirus cases and more than 149,900 fatalities since the pandemic began in March 2020.

President Biden while targeting the congressional elections in November had lashed out Republicans saying that they "want to talk down the recovery because they voted against the legislation that made it happen."

The Republicans have criticised Biden's spending plans and&nbsp;tax proposals asserting that it will lead to higher inflation. A defiant Joe Biden however said that he would not allow Republicans to "stand in the way of this recovery".

(With inputs from Agencies)

According to a poll, Americans listed economic woes over the pandemic as their main concern even as the pandemic continues to sweep the country. The coronavirus pandemic was listed by just 37 per cent of people as the top five priorities for the government this year.

According to a poll, Americans listed economic woes over the pandemic as their main concern even as the pandemic continues to sweep the country. The coronavirus pandemic was listed by just 37 per cent of people as the top five priorities for the government this year. At least 53 per cent of Americans had listed the virus as a major concern last year. At least 68 per cent of people felt the economy was the biggest concern this year for the Biden administration with inflation being one of the major headaches. Also Read: Joe Biden’s disapproval ratings hit record low Immigration and gun issues were listed as the other major concerns in the poll. The US is set to go in for crucial mid-term polls with President Biden's approval ratings already taking a beating amid the coronavirus crisis. The US economy has been hit by record unemployment even as the US Federal Reserve had pledged aggressive inflation-fighting measures last month. Last week the US dollar had suffered its biggest percentage drop in weeks after the disappointing December jobs report. The economic crisis has been heightened with the new Omicron wave which has further disrupted economic development. Also Read: Biden’s winter Covid plan is aimed at keeping the US economy open The United States is the worst-hit country due to the virus with over 52 million coronavirus cases and more than 149,900 fatalities since the pandemic began in March 2020. President Biden while targeting the congressional elections in November had lashed out Republicans saying that they "want to talk down the recovery because they voted against the legislation that made it happen." The Republicans have criticised Biden's spending plans and tax proposals asserting that it will lead to higher inflation. A defiant Joe Biden however said that he would not allow Republicans to "stand in the way of this recovery". (With inputs from Agencies)

Amid pandemic, poll reveals Americans have other major concerns

It is easy to recall the 1980s as being a boom time for the United States economy — a time of gleaming excess that, among other things, powered Ronald Reagan to a landslide reelection in 1984.

But the decade didn’t start out quite so sunny. And understanding the history of how the economy went from bust to boom in the early 1980s offers a surprising model for optimism about how the U.S. economy could progress in the next couple of years.

All it would take is for the Federal Reserve to pull off a delicate economic pivot that is the mirror image of the one it managed four decades ago.

Now, high inflation and a seemingly never-ending pandemic are depressing Americans’ attitudes about the economy. By contrast, in December 1981 — when Reagan had been president for 11 months, just as President Joe Biden has now — conditions were by most measures substantially worse. The unemployment rate was 8.5% and would keep rising throughout 1982. Inflation was 8.9%, and indexes of consumer sentiment were abysmal.

In an issue of Time magazine published this month 40 years ago, if you flip past a cover story that ranks the performance of Reagan’s Cabinet and an advertisement pitching a Smith-Corona typewriter as a holiday gift for your child, you see just how bad the vibes were.

“Gathering Gloom for Workers,” goes the headline, reporting that “A spreading slump swells the long gray line of the unemployed.” The article said joblessness was so high in Detroit that community leaders “fear that they are sitting on a smoldering powder keg of urban unrest.”

If nothing else, this chronology is a reminder that conditions can change surprisingly quickly. By the time Reagan was reelected in 1984, the jobless rate was 7.2% and falling and inflation was down to 4.2%.

Some commentators have argued that Biden has the opportunity to be an inverse of Reagan politically (much of this commentary, it should be noted, came before Sen. Joe Manchin pulled his support from the president’s signature Build Back Better bill ). And there is of course no telling what the next three years will bring politically, regardless of what happens to the economy.

But in terms of the economic backdrop, it is important to understand the “why” of the Reagan economic reversal.

Those gloomy unemployment numbers in Reagan’s first two years were a consequence of aggressive tightening of monetary policy by Fed Chair Paul Volcker, who was aiming to end the high inflation of the 1970s.

Over the course of the previous decade, high inflation had come to seem inevitable. This led labor unions and individual workers to demand higher pay raises and made businesses willing to pay more and charge more for their products. This had settled into a vicious cycle, with deep social and political ramifications.

“Inflation wasn’t just an economic problem,” said Mike Konczal, director of macroeconomic analysis at the Roosevelt Institute. “It gave people the impression of a social and political breakdown, that the system was not working.”

Volcker wanted to break that psychology. He did it with steep interest rate increases that, in the service of inflation control, brought the worst downturn in five decades.

Across the government, including in the Reagan administration, there was a concerted focus on breaking inflation, even as the job market worsened. “What I find startling about this downturn is that so few politicians are calling for federal job training or the extension of unemployment benefits,” said Alan Greenspan, a former presidential adviser who would go on to succeed Volcker, in the 1981 Time article. “Five years ago, politicians would have been stumbling all over themselves to demand anti-recession spending.”

By late 1981, there were signs it was starting to work. That same article, for example, notes that Teamsters who had managed a 31.5% pay raise in 1979 promised to be “reasonable” in the next negotiations, and that employees at major airlines had agreed to a 10% wage reduction.

With this progress against inflation, Volcker was ready to relent and begin lowering interest rates. This enabled a speedy recovery from the recession, powering the Reagan boom and a period in which both unemployment and inflation were steadily falling.

As the Fed chair now, Jerome Powell has until recently faced the opposite problem.

For most of the 2010s, inflation was lower than the Fed aims for and the job market was persistently weak. And for the first nine months or so of the pandemic, too-low inflation and too few jobs appeared to be the predominant economic problem. Just one year ago, in December 2020, bond market prices implied that inflation would remain below the Fed’s 2% target for years to come, and the jobless rate was still 6.7%.

Powell and the Fed organized their strategy for monetary policy around building the Fed’s credibility that it would no longer allow a persistently too-low inflation and a too-weak job market. A new “flexible average inflation targeting” strategy introduced in 2020 was built on allowing inflation to sometimes overshoot 2%.

That, in turn, helps explain why the Fed has been slow to move toward tighter money this year, even as inflation soared and the job market recovered quickly. Only this month, after year-over-year inflation reached a whopping 6.8%, did Powell undertake a clear shift toward tighter money. He signaled the Fed would speed up the end of its bond-buying program and could begin raising interest rates in the first part of 2022.

Just as Volcker was willing to allow a recession to take hold to break the high-inflation cycle of the 1970s, Powell has, until recently, emphasized that an inflationary surge that started earlier this year was likely to be temporary and that the urgency of achieving full employment was paramount.

The Powell pivot to tighter money in 2021 is the equivalent of Volcker’s 1981 move: By then Volcker was ready to relent and, in effect, declare victory, cutting interest rates and setting the stage for the economy to recover. The signs that inflationary pressures were shifting downward was sufficiently compelling that the psychology had broken.

“It was a nasty, nasty fall, but Volcker stuck the landing to the point that many parts of the macroeconomic landscape could be changed and tilted toward prosperity and markets,” said Paul McCulley, an economist and senior fellow at Cornell Law School.

What would a full reverse Reagan economy look like over the next few years?

Over the course of 2022, inflation starts to fade. Consumers shift some of their spending back toward services and away from physical goods, corporate supply chain managers figure out how to adjust to whatever changes in demand prove permanent, and demand moderates as the Fed moves toward somewhat higher interest rates and Congress does not repeat its pandemic spending binge of the first half of 2021.

But, crucially, in the best-case scenario for Biden and the Democrats, the Fed doesn’t overdo it. Just as the Volcker Fed was able to achieve a simultaneous drop in unemployment and inflation in 1983 and 1984, the Powell Fed faces the delicate task of trying to bring down inflation while not acting so aggressively as to undermine further improvement in the job market.

The goal is to achieve something of a Goldilocks scenario for the economy by late 2022. In projections released this month, for example, the median Fed leader expected an unemployment rate of a mere 3.5% and 2.6% inflation in the final months of next year, with a strong labor market and gradually receding inflation continuing through 2024.

“If the Fed, through skill and fate and luck, gets this thing settled down in the next year or two, you can make a pretty strong case that the underlying progressive agenda, which is to deal with income and wealth inequality, could actually flourish,” said McCulley.

If that were to happen, it would be an economy in which the favorable aspects of the 2021 economy — workers empowered, wages rising, and so on — persist, while the high inflation that has overwhelmed those gains in the minds of many Americans fades.

It would be no easy task to achieve. History is littered with examples of the Fed raising interest rates to rein in inflation, only to cause a recession; indeed, it was a more common pattern than not in the decades immediately following World War II. In a pessimistic scenario, the inflationary forces that have taken hold will prove sufficiently profound that they won’t go away absent a recession.

But the experience of the 1980s shows that things can get better, and that the economic and political fortunes can change faster than it might seem in a gloomy December.

It is easy to recall the 1980s as being a boom time for the United States economy — a time of gleaming excess that, among other things, powered Ronald Reagan to a landslide reelection in 1984.

It is easy to recall the 1980s as being a boom time for the United States economy — a time of gleaming excess that, among other things, powered Ronald Reagan to a landslide reelection in 1984. But the decade didn’t start out quite so sunny. And understanding the history of how the economy went from bust to boom in the early 1980s offers a surprising model for optimism about how the U.S. economy could progress in the next couple of years. All it would take is for the Federal Reserve to pull off a delicate economic pivot that is the mirror image of the one it managed four decades ago. Now, high inflation and a seemingly never-ending pandemic are depressing Americans’ attitudes about the economy. By contrast, in December 1981 — when Reagan had been president for 11 months, just as President Joe Biden has now — conditions were by most measures substantially worse. The unemployment rate was 8.5% and would keep rising throughout 1982. Inflation was 8.9%, and indexes of consumer sentiment were abysmal. In an issue of Time magazine published this month 40 years ago, if you flip past a cover story that ranks the performance of Reagan’s Cabinet and an advertisement pitching a Smith-Corona typewriter as a holiday gift for your child, you see just how bad the vibes were. “Gathering Gloom for Workers,” goes the headline, reporting that “A spreading slump swells the long gray line of the unemployed.” The article said joblessness was so high in Detroit that community leaders “fear that they are sitting on a smoldering powder keg of urban unrest.” If nothing else, this chronology is a reminder that conditions can change surprisingly quickly. By the time Reagan was reelected in 1984, the jobless rate was 7.2% and falling and inflation was down to 4.2%. Some commentators have argued that Biden has the opportunity to be an inverse of Reagan politically (much of this commentary, it should be noted, came before Sen. Joe Manchin pulled his support from the president’s signature Build Back Better bill ). And there is of course no telling what the next three years will bring politically, regardless of what happens to the economy. But in terms of the economic backdrop, it is important to understand the “why” of the Reagan economic reversal. Those gloomy unemployment numbers in Reagan’s first two years were a consequence of aggressive tightening of monetary policy by Fed Chair Paul Volcker, who was aiming to end the high inflation of the 1970s. Over the course of the previous decade, high inflation had come to seem inevitable. This led labor unions and individual workers to demand higher pay raises and made businesses willing to pay more and charge more for their products. This had settled into a vicious cycle, with deep social and political ramifications. “Inflation wasn’t just an economic problem,” said Mike Konczal, director of macroeconomic analysis at the Roosevelt Institute. “It gave people the impression of a social and political breakdown, that the system was not working.” Volcker wanted to break that psychology. He did it with steep interest rate increases that, in the service of inflation control, brought the worst downturn in five decades. Across the government, including in the Reagan administration, there was a concerted focus on breaking inflation, even as the job market worsened. “What I find startling about this downturn is that so few politicians are calling for federal job training or the extension of unemployment benefits,” said Alan Greenspan, a former presidential adviser who would go on to succeed Volcker, in the 1981 Time article. “Five years ago, politicians would have been stumbling all over themselves to demand anti-recession spending.” By late 1981, there were signs it was starting to work. That same article, for example, notes that Teamsters who had managed a 31.5% pay raise in 1979 promised to be “reasonable” in the next negotiations, and that employees at major airlines had agreed to a 10% wage reduction. With this progress against inflation, Volcker was ready to relent and begin lowering interest rates. This enabled a speedy recovery from the recession, powering the Reagan boom and a period in which both unemployment and inflation were steadily falling. As the Fed chair now, Jerome Powell has until recently faced the opposite problem. For most of the 2010s, inflation was lower than the Fed aims for and the job market was persistently weak. And for the first nine months or so of the pandemic, too-low inflation and too few jobs appeared to be the predominant economic problem. Just one year ago, in December 2020, bond market prices implied that inflation would remain below the Fed’s 2% target for years to come, and the jobless rate was still 6.7%. Powell and the Fed organized their strategy for monetary policy around building the Fed’s credibility that it would no longer allow a persistently too-low inflation and a too-weak job market. A new “flexible average inflation targeting” strategy introduced in 2020 was built on allowing inflation to sometimes overshoot 2%. That, in turn, helps explain why the Fed has been slow to move toward tighter money this year, even as inflation soared and the job market recovered quickly. Only this month, after year-over-year inflation reached a whopping 6.8%, did Powell undertake a clear shift toward tighter money. He signaled the Fed would speed up the end of its bond-buying program and could begin raising interest rates in the first part of 2022. Just as Volcker was willing to allow a recession to take hold to break the high-inflation cycle of the 1970s, Powell has, until recently, emphasized that an inflationary surge that started earlier this year was likely to be temporary and that the urgency of achieving full employment was paramount. The Powell pivot to tighter money in 2021 is the equivalent of Volcker’s 1981 move: By then Volcker was ready to relent and, in effect, declare victory, cutting interest rates and setting the stage for the economy to recover. The signs that inflationary pressures were shifting downward was sufficiently compelling that the psychology had broken. “It was a nasty, nasty fall, but Volcker stuck the landing to the point that many parts of the macroeconomic landscape could be changed and tilted toward prosperity and markets,” said Paul McCulley, an economist and senior fellow at Cornell Law School. What would a full reverse Reagan economy look like over the next few years? Over the course of 2022, inflation starts to fade. Consumers shift some of their spending back toward services and away from physical goods, corporate supply chain managers figure out how to adjust to whatever changes in demand prove permanent, and demand moderates as the Fed moves toward somewhat higher interest rates and Congress does not repeat its pandemic spending binge of the first half of 2021. But, crucially, in the best-case scenario for Biden and the Democrats, the Fed doesn’t overdo it. Just as the Volcker Fed was able to achieve a simultaneous drop in unemployment and inflation in 1983 and 1984, the Powell Fed faces the delicate task of trying to bring down inflation while not acting so aggressively as to undermine further improvement in the job market. The goal is to achieve something of a Goldilocks scenario for the economy by late 2022. In projections released this month, for example, the median Fed leader expected an unemployment rate of a mere 3.5% and 2.6% inflation in the final months of next year, with a strong labor market and gradually receding inflation continuing through 2024. “If the Fed, through skill and fate and luck, gets this thing settled down in the next year or two, you can make a pretty strong case that the underlying progressive agenda, which is to deal with income and wealth inequality, could actually flourish,” said McCulley. If that were to happen, it would be an economy in which the favorable aspects of the 2021 economy — workers empowered, wages rising, and so on — persist, while the high inflation that has overwhelmed those gains in the minds of many Americans fades. It would be no easy task to achieve. History is littered with examples of the Fed raising interest rates to rein in inflation, only to cause a recession; indeed, it was a more common pattern than not in the decades immediately following World War II. In a pessimistic scenario, the inflationary forces that have taken hold will prove sufficiently profound that they won’t go away absent a recession. But the experience of the 1980s shows that things can get better, and that the economic and political fortunes can change faster than it might seem in a gloomy December.

How the 2020s economy could resemble the 1980s

The United States Federal Reserve said that it would end its pandemic-era bond purchases in March and pave the way for three quarter-percentage-point interest rate hikes by the end of 2022 as the economy nears full employment and the US central bank copes with a surge of inflation.

US Federal Reserve signals three rate hikes in 2022 as inflation fight begins

Back in July, the White House’s Council of Economic Advisers posted a thoughtful article to its blog titled, “Historical Parallels to Today’s Inflationary Episode.” The article looked at six surges in inflation since World War II and argued persuasively that current events don’t look anything like the 1970s. Instead, the closest parallel to 2021’s inflation is the first of these surges, the price spike from 1946-48.

Wednesday’s consumer price report was ugly; inflation is running considerably hotter than many people, myself included, expected. But nothing about it contradicted CEA’s analysis — on the contrary, the similarity to early postwar inflation looks stronger than ever. What we’re experiencing now is a lot more like 1947 than like 1979.

And here’s what you need to know about that 1946-48 inflation spike: It was a one-time event, not the start of a protracted wage-price spiral. And the biggest mistake policymakers made in response to that inflation surge was failing to appreciate its transitory nature: They were still fighting inflation even as inflation was ceasing to be a problem, and in so doing helped bring on the recession of 1948-49.

About Wednesday’s price report: It looked very much like the classic story of inflation resulting from an overheated economy, in which too much money is chasing too few goods. Earlier this year the rise in prices had a narrow base, being driven largely by food, energy, used cars and services like air travel that were rebounding from the pandemic. That’s less true now: It looks as if demand is outstripping supply across much of the economy.

One caveat to this story is that overall demand in the United States actually doesn’t look all that high; real gross domestic product, which is equal to real spending on U.S.-produced goods and services, is still about two per cent below what we would have expected the economy’s capacity to be if the pandemic hadn’t happened. But demand has been skewed, with consumers buying fewer services but more goods than before, putting a strain on ports, trucking, warehouses and more. These supply-chain issues have been exacerbated by the global shortage of semiconductor chips, together with the Great Resignation — the reluctance of many workers to return to their old jobs. So we’re having an inflation spurt.

On the plus side, jobs have rarely been this plentiful for those who want them. And contrary to the cliche, current inflation isn’t falling most heavily on the poor: Wage increases have been especially rapid for the lowest-paid workers.

So what can 1946-48 teach us about inflation in 2021? Then as now there was a surge in consumer spending, as families rushed to buy the goods that had been unavailable in wartime. Then as now it took time for the economy to adjust to a big shift in demand — in the 1940s, the shift from military to civilian needs. Then as now the result was inflation, which in 1947 topped out at almost 20 per cent. Nor was this inflation restricted to food and energy; wage growth in manufacturing, which was much more representative of the economy as a whole in 1947 than it is now, peaked at 22 per cent.

But the inflation didn’t last. It didn’t end immediately: Prices kept rising rapidly for well over a year. Over the course of 1948, however, inflation plunged, and by 1949 it had turned into brief deflation.

What, then, does history teach us about the current inflation spike? One lesson is that brief episodes of overheating don’t necessarily lead to 1970s-type stagflation — 1946-48 didn’t cause long-term inflation, and neither did the other episodes that most resemble where we are now: World War I and the Korean War. And we really should have some patience: Given what happened in the 1940s, pronouncements that inflation can’t be transitory because it has persisted for a number of months are just silly.

Oh, and for what it’s worth, the bond market is in effect predicting a temporary bump in inflation, not a permanent rise. Yields on inflation-protected bonds maturing over the next couple of years are strongly negative, implying that investors expect rapid price rises in the near term. But longer-term market expectations of inflation have remained stable.

Another lesson, which is extremely relevant right now (hello, Sen. Manchin), is that an inflation spurt is no reason to cancel long-term investment plans. The inflation surge of the 1940s was followed by an epic period of public investment in America’s future, which included the construction of the Interstate Highway System. That investment didn’t reignite inflation — if anything, by improving America’s logistics, it probably helped keep inflation down. The same can be said of the Biden administration’s spending proposals, which would do little to boost short-term demand and would help long-term supply.

So yes, that was an ugly inflation report, and we hope that future reports will look better. But people making knee-jerk comparisons with the 1970s and screaming about stagflation are looking at the wrong history. When you look at the right history, it tells you not to panic.

Back in July, the White House’s Council of Economic Advisers posted a thoughtful article to its blog titled, “Historical Parallels to Today’s Inflationary Episode.

Back in July, the White House’s Council of Economic Advisers posted a thoughtful article to its blog titled, “Historical Parallels to Today’s Inflationary Episode.” The article looked at six surges in inflation since World War II and argued persuasively that current events don’t look anything like the 1970s. Instead, the closest parallel to 2021’s inflation is the first of these surges, the price spike from 1946-48. Wednesday’s consumer price report was ugly; inflation is running considerably hotter than many people, myself included, expected. But nothing about it contradicted CEA’s analysis — on the contrary, the similarity to early postwar inflation looks stronger than ever. What we’re experiencing now is a lot more like 1947 than like 1979. And here’s what you need to know about that 1946-48 inflation spike: It was a one-time event, not the start of a protracted wage-price spiral. And the biggest mistake policymakers made in response to that inflation surge was failing to appreciate its transitory nature: They were still fighting inflation even as inflation was ceasing to be a problem, and in so doing helped bring on the recession of 1948-49. About Wednesday’s price report: It looked very much like the classic story of inflation resulting from an overheated economy, in which too much money is chasing too few goods. Earlier this year the rise in prices had a narrow base, being driven largely by food, energy, used cars and services like air travel that were rebounding from the pandemic. That’s less true now: It looks as if demand is outstripping supply across much of the economy. One caveat to this story is that overall demand in the United States actually doesn’t look all that high; real gross domestic product, which is equal to real spending on U.S.-produced goods and services, is still about two per cent below what we would have expected the economy’s capacity to be if the pandemic hadn’t happened. But demand has been skewed, with consumers buying fewer services but more goods than before, putting a strain on ports, trucking, warehouses and more. These supply-chain issues have been exacerbated by the global shortage of semiconductor chips, together with the Great Resignation — the reluctance of many workers to return to their old jobs. So we’re having an inflation spurt. On the plus side, jobs have rarely been this plentiful for those who want them. And contrary to the cliche, current inflation isn’t falling most heavily on the poor: Wage increases have been especially rapid for the lowest-paid workers. So what can 1946-48 teach us about inflation in 2021? Then as now there was a surge in consumer spending, as families rushed to buy the goods that had been unavailable in wartime. Then as now it took time for the economy to adjust to a big shift in demand — in the 1940s, the shift from military to civilian needs. Then as now the result was inflation, which in 1947 topped out at almost 20 per cent. Nor was this inflation restricted to food and energy; wage growth in manufacturing, which was much more representative of the economy as a whole in 1947 than it is now, peaked at 22 per cent. But the inflation didn’t last. It didn’t end immediately: Prices kept rising rapidly for well over a year. Over the course of 1948, however, inflation plunged, and by 1949 it had turned into brief deflation. What, then, does history teach us about the current inflation spike? One lesson is that brief episodes of overheating don’t necessarily lead to 1970s-type stagflation — 1946-48 didn’t cause long-term inflation, and neither did the other episodes that most resemble where we are now: World War I and the Korean War. And we really should have some patience: Given what happened in the 1940s, pronouncements that inflation can’t be transitory because it has persisted for a number of months are just silly. Oh, and for what it’s worth, the bond market is in effect predicting a temporary bump in inflation, not a permanent rise. Yields on inflation-protected bonds maturing over the next couple of years are strongly negative, implying that investors expect rapid price rises in the near term. But longer-term market expectations of inflation have remained stable. Another lesson, which is extremely relevant right now (hello, Sen. Manchin), is that an inflation spurt is no reason to cancel long-term investment plans. The inflation surge of the 1940s was followed by an epic period of public investment in America’s future, which included the construction of the Interstate Highway System. That investment didn’t reignite inflation — if anything, by improving America’s logistics, it probably helped keep inflation down. The same can be said of the Biden administration’s spending proposals, which would do little to boost short-term demand and would help long-term supply. So yes, that was an ugly inflation report, and we hope that future reports will look better. But people making knee-jerk comparisons with the 1970s and screaming about stagflation are looking at the wrong history. When you look at the right history, it tells you not to panic.

History says don’t panic about inflation

In two weeks, America could default on its debt for the first time in history. President Joe Biden has called it a 'meteor headed for the US economy'. Are Republicans using the recession as leverage? Is Biden's bipartisanship claim a sham? Palki Sharma tells you.

Gravitas: Biden blames Republicans for looming credit default

Racial and ethnic inequities have cost the US&nbsp;economy some $51 trillion in lost output since 1990, San Francisco Federal Reserve President Mary Daly said Wednesday, citing data from a paper she and three co-authors will present at The Brookings Institution.

Large and persistent gaps in rates of employment, education, and earnings across races “add up to a smaller economic pie for the nation as a whole,” Daly said in a briefing ahead of the paper’s release Thursday.

“The imperative for equity, for closing some of these gaps, is not only a moral one, but it’s also an economic one.”

The paper maps out what GDP would have been if gaps in the labor market didn’t exist.

Employment for Black men, for instance, is consistently lower than that for men of other races.

Earnings by Black and Hispanic workers also lag those of whites.

Daly and her co-authors calculated what the gains to GDP would be if those and other race-based gaps were erased: if Black and Hispanic men and women held jobs at the same rates as whites, if they completed college at the same rates as whites, and if they earned the same as whites.

From labor alone, they figured, the gains would add up to $22.9 trillion over the thirty years from 1990 to 2019, with bigger gains in more recent years as the share of non-white populations has increased while the gaps have remained fairly steady.

The larger $51.2 trillion estimate factors in the increase in capital investments that a more productive labor pool could be expected to trigger, Daly said, and includes $2.57 trillion in 2019 alone.

The paper was written with Shelby Buckman, a graduate student at Stanford University, Boston University post-grad Lily Seitelman, and San Francisco Fed vice president of community development Laura Choi.

Racial and ethnic inequities have cost the US economy some $51 trillion in lost output since 1990, San Francisco Federal Reserve President Mary Daly said Wednesday, citing data from a paper she and three co-authors will present at The Brookings Institution.

Racial and ethnic inequities have cost the US economy some $51 trillion in lost output since 1990, San Francisco Federal Reserve President Mary Daly said Wednesday, citing data from a paper she and three co-authors will present at The Brookings Institution. Large and persistent gaps in rates of employment, education, and earnings across races “add up to a smaller economic pie for the nation as a whole,” Daly said in a briefing ahead of the paper’s release Thursday. “The imperative for equity, for closing some of these gaps, is not only a moral one, but it’s also an economic one.” The paper maps out what GDP would have been if gaps in the labor market didn’t exist. Employment for Black men, for instance, is consistently lower than that for men of other races. Earnings by Black and Hispanic workers also lag those of whites. Daly and her co-authors calculated what the gains to GDP would be if those and other race-based gaps were erased: if Black and Hispanic men and women held jobs at the same rates as whites, if they completed college at the same rates as whites, and if they earned the same as whites. From labor alone, they figured, the gains would add up to $22.9 trillion over the thirty years from 1990 to 2019, with bigger gains in more recent years as the share of non-white populations has increased while the gaps have remained fairly steady. The larger $51.2 trillion estimate factors in the increase in capital investments that a more productive labor pool could be expected to trigger, Daly said, and includes $2.57 trillion in 2019 alone. The paper was written with Shelby Buckman, a graduate student at Stanford University, Boston University post-grad Lily Seitelman, and San Francisco Fed vice president of community development Laura Choi.

Researchers find racial inequities cost US economy over $50 trillion since 1990

As vaccines help quell <a href="https://www.wionews.com/topics/coronavirus">COVID-19</a> cases, millions of Americans have gone back to work, but fewer Black and Hispanic workers are being rehired, entrenching persistent inequalities in the United States.

The divides are fueled by long-running&nbsp;employment&nbsp;discrimination, experts say, worsened by unique, virus-related disruptions that have left many job seekers unable to find work they can get to, or feel safe doing.

Also read |&nbsp;<a href="https://www.wionews.com/world/social-inequities-explain-racial-gaps-in-pandemic-studies-find-348674">Social inequities explain racial gaps in pandemic, studies find</a>

"We haven't actually addressed those underlying power disparities in the&nbsp;economy," said Kate Bahn, director of labour market policy with the Washington Center for Equitable Growth.

After skyrocketing to 14.7 per cent in April 2020 when business restrictions to stop the virus from spreading were at their tightest, the US&nbsp;unemployment&nbsp;rate dropped to 5.9 per cent in June, according to the Labor Department.

But the gains were not shared equally: the jobless rate for Black workers was 9.2 per cent and for Hispanics 7.4 per cent, compared with 5.2 per cent for whites.

The&nbsp;racial&nbsp;and ethnic&nbsp;employment&nbsp;gaps in the world's largest&nbsp;economy&nbsp;were present even when&nbsp;unemployment&nbsp;was at record lows before the pandemic.

In Washington, the issue is receiving renewed attention from <a href="https://www.wionews.com/topics/joe-biden">President Joe Biden</a>, who has put forth massive spending plans he says will help reshape the&nbsp;economy&nbsp;and make it more inclusive.

Also read |&nbsp;<a href="https://www.wionews.com/world/classrooms-grapple-with-racial-slurs-in-classic-american-novels-394213">Classrooms grapple with racial slurs in classic American novels</a>

"When I started studying economics in 1963, the average Black family's wealth was roughly 15 percent of the average white family's," Treasury Secretary Janet Yellen said Thursday.

"What is surprising, however, is that it's almost six decades later, and the data point has barely changed. It's still 15 percent."

The Federal Reserve has also pledged to keep interest rates low for longer to increase the hiring of&nbsp;racial&nbsp;minorities, something that took nearly a decade following the 2008 global financial crisis.

"We all do better when the pie is bigger, and you get the pie bigger by being aggressive about this," William Spriggs, chief economist of the AFL-CIO trade union federation, told AFP.

'Fixed disparity'

The Labor Department is due to release the latest&nbsp;employment&nbsp;report on Friday, which some economists expect will show the&nbsp;economy&nbsp;gaining over one million jobs in July, lowering the&nbsp;unemployment&nbsp;rate to 5.6 per cent as more businesses reopen.

Also read |&nbsp;<a href="https://www.wionews.com/world/us-protests-highlight-inequalities-and-endemic-racial-discrimination-un-rights-chief-michelle-bachelet-302667">US protests highlight inequalities and endemic racial discrimination: UN rights chief Michelle Bachelet</a>

The June data showed&nbsp;unemployment&nbsp;for white women was five per cent, despite losing jobs last year at about the same rate as Black workers, who have seen much slower rehiring. The trend is similar for Hispanics.

"There is a fixed disparity between Blacks and whites in terms of being rehired," Spriggs said.

A higher share of Black women are looking for jobs than white women, but large and small companies nationwide nonetheless complain they cannot find people to fill open positions, especially skilled workers.

"These employers are all yelling we can't find workers, we can't find workers. Black women are more available and yet they're not hiring them," Spriggs said.

"It's discrimination. Until we get serious about discrimination in hiring and discrimination in labor force, we just can't advance."

Also read |&nbsp;<a href="https://www.wionews.com/world/black-lives-matter-activists-note-contrast-in-police-response-at-capitol-355386">Black Lives Matter activists note contrast in police response at Capitol</a>

Scholars blame the disparity on factors that push Black and Hispanic workers into jobs that pay less and often put them most at risk of contracting COVID-19.

Virus still a threat&nbsp;

Walter L. Simmons, president and CEO of nonprofit Employ Prince George's, which serves a mostly Black and Hispanic county outside Washington, said the ongoing pandemic disruptions are keeping some people from taking jobs, or even looking for work.

Bus and ride-sharing services have not yet returned to normal, meaning many jobseekers often cannot get to work. Childcare also has been curtailed, so working parents have to figure out what to do with their children.

Many people in Prince George's county live with extended family, and may be reluctant to take a job where they risk infection, Simmons said,&nbsp;a fear that has grown more acute as the highly infectious <a href="https://www.wionews.com/world/delta-is-the-fastest-covid-19-variant-and-will-pick-off-the-most-vulnerable-who-393278">Delta variant</a> spreads.

Also read |&nbsp;<a href="https://www.wionews.com/world/pandemic-economic-crisis-racial-injustice-climate-crisis-threats-to-our-democracy-says-president-biden-from-lincoln-memorial-358219">Pandemic, economic crisis, racial injustice, climate crisis threats to our democracy, says President Biden from Lincoln Memorial</a>

"Those are three areas we're seeing that nobody really has an answer for. They're just saying come back to work," Simmons said in an interview.

For now, jobless workers are able to survive off of expanded&nbsp;unemployment&nbsp;benefits authorized by the federal government, which pay some low-wage workers more than their previous jobs.

About two dozen states ended these benefits, and in September, they expire nationwide.&nbsp;

Simmons fears what could happen after.

"Those who were struggling prior to the pandemic, they're really going to struggle," he said.

As vaccines help quell COVID-19 cases, millions of Americans have gone back to work, but fewer Black and Hispanic workers are being rehired, entrenching persistent inequalities in the United States.

As vaccines help quell COVID-19 cases, millions of Americans have gone back to work, but fewer Black and Hispanic workers are being rehired, entrenching persistent inequalities in the United States. The divides are fueled by long-running employment discrimination, experts say, worsened by unique, virus-related disruptions that have left many job seekers unable to find work they can get to, or feel safe doing. Also read | Social inequities explain racial gaps in pandemic, studies find "We haven't actually addressed those underlying power disparities in the economy," said Kate Bahn, director of labour market policy with the Washington Center for Equitable Growth. After skyrocketing to 14.7 per cent in April 2020 when business restrictions to stop the virus from spreading were at their tightest, the US unemployment rate dropped to 5.9 per cent in June, according to the Labor Department. But the gains were not shared equally: the jobless rate for Black workers was 9.2 per cent and for Hispanics 7.4 per cent, compared with 5.2 per cent for whites. The racial and ethnic employment gaps in the world's largest economy were present even when unemployment was at record lows before the pandemic. In Washington, the issue is receiving renewed attention from President Joe Biden, who has put forth massive spending plans he says will help reshape the economy and make it more inclusive. Also read | Classrooms grapple with racial slurs in classic American novels "When I started studying economics in 1963, the average Black family's wealth was roughly 15 percent of the average white family's," Treasury Secretary Janet Yellen said Thursday. "What is surprising, however, is that it's almost six decades later, and the data point has barely changed. It's still 15 percent." The Federal Reserve has also pledged to keep interest rates low for longer to increase the hiring of racial minorities, something that took nearly a decade following the 2008 global financial crisis. "We all do better when the pie is bigger, and you get the pie bigger by being aggressive about this," William Spriggs, chief economist of the AFL-CIO trade union federation, told AFP. 'Fixed disparity' The Labor Department is due to release the latest employment report on Friday, which some economists expect will show the economy gaining over one million jobs in July, lowering the unemployment rate to 5.6 per cent as more businesses reopen. Also read | US protests highlight inequalities and endemic racial discrimination: UN rights chief Michelle Bachelet The June data showed unemployment for white women was five per cent, despite losing jobs last year at about the same rate as Black workers, who have seen much slower rehiring. The trend is similar for Hispanics. "There is a fixed disparity between Blacks and whites in terms of being rehired," Spriggs said. A higher share of Black women are looking for jobs than white women, but large and small companies nationwide nonetheless complain they cannot find people to fill open positions, especially skilled workers. "These employers are all yelling we can't find workers, we can't find workers. Black women are more available and yet they're not hiring them," Spriggs said. "It's discrimination. Until we get serious about discrimination in hiring and discrimination in labor force, we just can't advance." Also read | Black Lives Matter activists note contrast in police response at Capitol Scholars blame the disparity on factors that push Black and Hispanic workers into jobs that pay less and often put them most at risk of contracting COVID-19. Virus still a threat Walter L. Simmons, president and CEO of nonprofit Employ Prince George's, which serves a mostly Black and Hispanic county outside Washington, said the ongoing pandemic disruptions are keeping some people from taking jobs, or even looking for work. Bus and ride-sharing services have not yet returned to normal, meaning many jobseekers often cannot get to work. Childcare also has been curtailed, so working parents have to figure out what to do with their children. Many people in Prince George's county live with extended family, and may be reluctant to take a job where they risk infection, Simmons said, a fear that has grown more acute as the highly infectious Delta variant spreads. Also read | Pandemic, economic crisis, racial injustice, climate crisis threats to our democracy, says President Biden from Lincoln Memorial "Those are three areas we're seeing that nobody really has an answer for. They're just saying come back to work," Simmons said in an interview. For now, jobless workers are able to survive off of expanded unemployment benefits authorized by the federal government, which pay some low-wage workers more than their previous jobs. About two dozen states ended these benefits, and in September, they expire nationwide. Simmons fears what could happen after. "Those who were struggling prior to the pandemic, they're really going to struggle," he said.

Racial employment divide continues in recovering US economy

The entire U.S. economy, all $20 trillion of it, relies heavily on our infrastructure in one way or another, through transportation, power grids, high-speed internet, ports, roads, and bridges.

Senate finalises trillion-dollar bipartisan infrastructure deal

Minneapolis Federal Reserve President Neel Kashkari said many US economic sectors faced rapidly rising prices and were struggling to adjust to reopening after the shutdown.

World Business Watch: Fed's Kashkari says many US sectors struggling to adjust to reopening

The massive US services sector continued to improve in May, expanding for the 12th straight month and hitting an all-time high, according to an industry survey released Thursday.

As the economic reopening from the COVID-19 pandemic picked up speed, the Institute for Supply Management (ISM) said its service sector index rose 1.3 points to 64, surpassing analyst expectations.

Also read |&nbsp;<a href="https://www.wionews.com/world/belarus-slaps-retaliatory-sanctions-on-us-389264" hreflang="en">Belarus slaps retaliatory sanctions on US</a>

ISM's non-manufacturing index showed all 18 service industries reported growth, though the employment component slowed.

"The rate of expansion is very strong, as businesses have reopened and production capacity has increased," survey chair Anthony Nieves said in a statement.

"However, some capacity constraints, material shortages, weather-related delays and challenges in logistics and employment resources continue."

Also read |&nbsp;<a href="https://www.wionews.com/world/us-to-distribute-80-million-vaccine-doses-through-covax-india-to-receive-6-million-in-first-phase-white-house-389263" hreflang="en">US to distribute 80 million vaccine doses through Covax; India to receive 6 million in first phase: White House</a>

The survey showed prices continued to climb as well amid widespread reports of rising costs for commodities — with none showing declines in the month, according to the report.

"Stimulus money, increased vaccinations, increased dining capacity and pent-up demand are driving a fast recovery for dine-in restaurants — and all consumer segments, it seems — resulting in labor shortages and supply chain gaps," said one respondent in the accommodation and food services sector.

A construction executive flagged shortages of "crucial material and equipment" as the biggest concern.

Nieves noted the 4.3 point jump in the supplier deliveries index indicating deliveries have slowed, which he said "is typical as the economy improves and customer demand increases."

The massive US services sector continued to improve in May, expanding for the 12th straight month and hitting an all-time high, according to an industry survey released Thursday.

The massive US services sector continued to improve in May, expanding for the 12th straight month and hitting an all-time high, according to an industry survey released Thursday. As the economic reopening from the COVID-19 pandemic picked up speed, the Institute for Supply Management (ISM) said its service sector index rose 1.3 points to 64, surpassing analyst expectations. Also read | Belarus slaps retaliatory sanctions on US ISM's non-manufacturing index showed all 18 service industries reported growth, though the employment component slowed. "The rate of expansion is very strong, as businesses have reopened and production capacity has increased," survey chair Anthony Nieves said in a statement. "However, some capacity constraints, material shortages, weather-related delays and challenges in logistics and employment resources continue." Also read | US to distribute 80 million vaccine doses through Covax; India to receive 6 million in first phase: White House The survey showed prices continued to climb as well amid widespread reports of rising costs for commodities — with none showing declines in the month, according to the report. "Stimulus money, increased vaccinations, increased dining capacity and pent-up demand are driving a fast recovery for dine-in restaurants — and all consumer segments, it seems — resulting in labor shortages and supply chain gaps," said one respondent in the accommodation and food services sector. A construction executive flagged shortages of "crucial material and equipment" as the biggest concern. Nieves noted the 4.3 point jump in the supplier deliveries index indicating deliveries have slowed, which he said "is typical as the economy improves and customer demand increases."

US service sector index hits all-time high in May: Survey

Two days after a federal judge struck down a national moratorium on evictions, the Biden administration said Friday that it would accelerate the distribution of vast sums of rental aid that state and local governments have been slow to spend.

The Treasury Department issued new rules meant to make it easier for tenants to gain access to the $46.5 billion in aid. They simplify applications, cover an expanded list of costs like moving expenses and hotel stays, and require programs to help tenants even if their landlords refuse to participate.

Housing advocates praised the changes, which include an expansion of legal aid to tenants and a promise of advice to localities struggling to create the programs, which are intended to avert evictions caused by the economic shocks from the pandemic.

"Wow, this is huge," said Christina Rosales, the deputy director of Texas Housers. "I think this will mean more tenants get the help they need."

But with about 400 state and local governments operating programs with varying degrees of urgency, the immediate effect of the changes is unclear. Some states, including New York and Florida, have not even begun to accept applications.

The sums at stake rival the annual budget of the federal housing department. Congress approved $25 billion of emergency assistance in December and an additional $21.5 billion in March. But only a sliver of that money has reached landlord or tenants so far.

New York has $800 million to spend just from the December allocation, and Florida has $871 million. California, with $1.5 billion to spend, has been accepting applications since March. But it has approved awards of only about $72 million, or 5% of its funds, and paid out less than $5 million.

The Emergency Rental Assistance Program allocates money to states and to cities and counties with populations of at least 200,000 if they chose to run their own programs. Some have simply been slow to act: legislatures in New York and South Carolina did not authorize their programs until April.

Some landlords have declined to participate, betting they have more to gain by forcing out tenants in arrears and attracting those better able to pay.

Two days after a federal judge struck down a national moratorium on evictions, the Biden administration said Friday that it would accelerate the distribution of vast sums of rental aid that state and local governments have been slow to spend.

Two days after a federal judge struck down a national moratorium on evictions, the Biden administration said Friday that it would accelerate the distribution of vast sums of rental aid that state and local governments have been slow to spend. The Treasury Department issued new rules meant to make it easier for tenants to gain access to the $46.5 billion in aid. They simplify applications, cover an expanded list of costs like moving expenses and hotel stays, and require programs to help tenants even if their landlords refuse to participate. Housing advocates praised the changes, which include an expansion of legal aid to tenants and a promise of advice to localities struggling to create the programs, which are intended to avert evictions caused by the economic shocks from the pandemic. "Wow, this is huge," said Christina Rosales, the deputy director of Texas Housers. "I think this will mean more tenants get the help they need." But with about 400 state and local governments operating programs with varying degrees of urgency, the immediate effect of the changes is unclear. Some states, including New York and Florida, have not even begun to accept applications. The sums at stake rival the annual budget of the federal housing department. Congress approved $25 billion of emergency assistance in December and an additional $21.5 billion in March. But only a sliver of that money has reached landlord or tenants so far. New York has $800 million to spend just from the December allocation, and Florida has $871 million. California, with $1.5 billion to spend, has been accepting applications since March. But it has approved awards of only about $72 million, or 5% of its funds, and paid out less than $5 million. The Emergency Rental Assistance Program allocates money to states and to cities and counties with populations of at least 200,000 if they chose to run their own programs. Some have simply been slow to act: legislatures in New York and South Carolina did not authorize their programs until April. Some landlords have declined to participate, betting they have more to gain by forcing out tenants in arrears and attracting those better able to pay.

Biden administration moves to speed aid to renters

World's largest economy US is recovering at a fast pace. Businesses and households improved their balance sheets late last year with the help of government support, but some consumers and the smallest businesses continued to struggle.

World Business Watch: US households and businesses facing unequal recovery

The gross domestic product (GDP) of the United States grew 6.4% in the first fiscal quarter of 2021 compared to the same period in the previous year. The US economy expanded 4.3% in the fourth quarter of 2020.

World Business Watch: US economy soared in the first quarter, growing at a 6.4% rate

The increase in its consumer price index followed a 0.4% increase in February and was the biggest one-month gain since a 0.6% rise in August 2012

Consumer prices jump 0.6% in March, biggest gain since 2012

The US government's budget deficit surged to an all-time high of USD 1.7 trillion for the first six months of this budget year.

US budget deficit jumps to an all-time high

The US trade deficit surged to a record high in February as the nation's economic activity rebounded more quickly than that of its global rivals and could remain elevated this year as well, with massive fiscal stimulus expected to spur the fastest growth in nearly four decades.

World Business Watch: US trade deficit hits record high in February

Federal Reserve Chair Jerome Powell on Tuesday said the U.S. economy may grow in the range of 6% this year.

2021 US GDP growth could be in range of 6%

Federal Reserve President Robert Kaplan on Monday said his forecast for 5% U.S. GDP growth this year.

Fed sees U.S. economy growing at least 5% this year

Americans saw their incomes rise more than expected and spending sink less than forecast in December, thanks to continued support from the government, the Commerce Department said Friday.

Even as data indicates well over one million people are laid off in the world's largest economy each week, personal income increased by 0.6 percent or $116.6 billion in December, while expenditures decreased only $27.9 billion or 0.2 percent, both better than expected.

The income gain came after a 1.3 percent decline seen in November, and the Commerce Department attributed the increase to both financial dividends and government stimulus packages.&nbsp;

Income was in particular supported by a $900 billion measure Congress approved last month that refreshed small business aid and expanded unemployment benefits first provided under a separate bill passed as the Covid-19 pandemic began in March.

Spending nonetheless declined, with the data showing consumers especially avoiding trips to restaurants and other food industry businesses, a sector already hit hard by Covid-19, as well as purchases of recreational equipment.

As the coronavirus pandemic wears on in the United States even as vaccines are being rolled out, Rubeela Farooqi of High Frequency Economics warned consumers may increasingly opt to hold on to their money in the coming months.

"Not only will consumption start from a weak base but containment measures that are restricting activity will likely weigh on spending," and the first quarter of 2021 could see more weakness, she said.

As consumers spent less but received more, the data showed the personal savings rate climbing 13.7 percent to $2.38 trillion, its highest level since September.

Americans saw their incomes rise more than expected and spending sink less than forecast in December, thanks to continued support from the government, the Commerce Department said Friday.

Americans saw their incomes rise more than expected and spending sink less than forecast in December, thanks to continued support from the government, the Commerce Department said Friday. Even as data indicates well over one million people are laid off in the world's largest economy each week, personal income increased by 0.6 percent or $116.6 billion in December, while expenditures decreased only $27.9 billion or 0.2 percent, both better than expected. The income gain came after a 1.3 percent decline seen in November, and the Commerce Department attributed the increase to both financial dividends and government stimulus packages. Income was in particular supported by a $900 billion measure Congress approved last month that refreshed small business aid and expanded unemployment benefits first provided under a separate bill passed as the Covid-19 pandemic began in March. Spending nonetheless declined, with the data showing consumers especially avoiding trips to restaurants and other food industry businesses, a sector already hit hard by Covid-19, as well as purchases of recreational equipment. As the coronavirus pandemic wears on in the United States even as vaccines are being rolled out, Rubeela Farooqi of High Frequency Economics warned consumers may increasingly opt to hold on to their money in the coming months. "Not only will consumption start from a weak base but containment measures that are restricting activity will likely weigh on spending," and the first quarter of 2021 could see more weakness, she said. As consumers spent less but received more, the data showed the personal savings rate climbing 13.7 percent to $2.38 trillion, its highest level since September.

Aid infusions keep US income afloat in December, spending falls

The U.S. economy contracted at its sharpest pace since World War Two in 2020 as the COVID-19 pandemic depressed consumer spending and business investment, pushing millions of Americans out of work and into poverty.

COVID-19 savages US economy, 2020 performance worst in 74 years

The US economy shrunk by 3.5 per cent last year as COVID-19 ravaged services businesses like restaurants and airlines, throwing millions of Americans out of work and into poverty.

It was the biggest contraction of the world's largest economy since 1946, the Commerce Department said on Thursday.

The contraction reflected the drop in spending as well as in "exports, private inventory investment, nonresidential fixed investment, and state and local government that were partly offset by increases in federal government spending and residential fixed investment," the report said.

Net exports fell 13 per cent last year while personal consumption expenditures dropped 3.9 per cent.

For the fourth quarter alone, GDP grew by an annual rate of 4.0 per cent, according to the first estimate for the final three months of the year.&nbsp;

Compared to the July-September period, the measure used in most other countries, fourth quarter growth was just 1.0 per cent, the report said.

That followed the record 7.5 per cent rebound in the third quarter, and the record 9.0 per cent drop in the April-June period.

The Commerce Department's snapshot of fourth-quarter gross domestic product on Thursday also showed the recovery from the pandemic losing steam as the year wound down amid a resurgence in coronavirus infections and exhaustion of nearly $3 trillion in relief money from the government.

The Federal Reserve on Wednesday left its benchmark overnight interest rate near zero and pledged to continue injecting money into the economy through bond purchases, noting that "the pace of the recovery in economic activity and employment has moderated in recent months."

President Joe Biden has unveiled a recovery plan worth $1.9 trillion, and could use the GDP report to lean on some lawmakers who have balked at the price tag soon after the government provided nearly $900 billion in additional stimulus at the end of December.

The economy contracted 3.5 per cent in 2020, the worst performance since 1946. That followed 2.2 per cent growth in 2019 and was the first annual decline in GDP since the 2007-09 Great Recession. The economy plunged into recession last February.

In the fourth quarter, GDP increased at a 4.0 per cent annualised rate as the virus and lack of another spending package curtailed consumer spending, and partially overshadowed robust manufacturing and the housing market. GDP growth for the last quarter was in line with forecasts in a Reuters poll of economists.

With the virus not yet under control, economists are expecting growth to further slow down in the first quarter of 2021, before regaining speed by summer as the additional stimulus kicks in and more Americans get vaccinated.

The stars of the recovery have been the housing market and manufacturing as those who are still employed seek larger homes away from city centers, and buy electronics for home offices and schooling. Manufacturing's share of GDP has increased to 11.9 per cent from 11.6 per cent at the end of 2019.

(with inputs from agencies)

The US economy shrunk by 3.5 per cent last year as COVID-19 ravaged services businesses like restaurants and airlines, throwing millions of Americans out of work and into poverty.

The US economy shrunk by 3.5 per cent last year as COVID-19 ravaged services businesses like restaurants and airlines, throwing millions of Americans out of work and into poverty. It was the biggest contraction of the world's largest economy since 1946, the Commerce Department said on Thursday. The contraction reflected the drop in spending as well as in "exports, private inventory investment, nonresidential fixed investment, and state and local government that were partly offset by increases in federal government spending and residential fixed investment," the report said. Net exports fell 13 per cent last year while personal consumption expenditures dropped 3.9 per cent. For the fourth quarter alone, GDP grew by an annual rate of 4.0 per cent, according to the first estimate for the final three months of the year. Compared to the July-September period, the measure used in most other countries, fourth quarter growth was just 1.0 per cent, the report said. That followed the record 7.5 per cent rebound in the third quarter, and the record 9.0 per cent drop in the April-June period. The Commerce Department's snapshot of fourth-quarter gross domestic product on Thursday also showed the recovery from the pandemic losing steam as the year wound down amid a resurgence in coronavirus infections and exhaustion of nearly $3 trillion in relief money from the government. The Federal Reserve on Wednesday left its benchmark overnight interest rate near zero and pledged to continue injecting money into the economy through bond purchases, noting that "the pace of the recovery in economic activity and employment has moderated in recent months." President Joe Biden has unveiled a recovery plan worth $1.9 trillion, and could use the GDP report to lean on some lawmakers who have balked at the price tag soon after the government provided nearly $900 billion in additional stimulus at the end of December. The economy contracted 3.5 per cent in 2020, the worst performance since 1946. That followed 2.2 per cent growth in 2019 and was the first annual decline in GDP since the 2007-09 Great Recession. The economy plunged into recession last February. In the fourth quarter, GDP increased at a 4.0 per cent annualised rate as the virus and lack of another spending package curtailed consumer spending, and partially overshadowed robust manufacturing and the housing market. GDP growth for the last quarter was in line with forecasts in a Reuters poll of economists. With the virus not yet under control, economists are expecting growth to further slow down in the first quarter of 2021, before regaining speed by summer as the additional stimulus kicks in and more Americans get vaccinated. The stars of the recovery have been the housing market and manufacturing as those who are still employed seek larger homes away from city centers, and buy electronics for home offices and schooling. Manufacturing's share of GDP has increased to 11.9 per cent from 11.6 per cent at the end of 2019. (with inputs from agencies)

US economy contracts in 2020, has worst year since 1946

WASHINGTON — Joe Biden is inheriting an economic crisis as he assumes the presidency, just as he did when he became vice president a dozen years ago. But this crisis is different and, to the relief of many liberal economists, so is Biden’s response.

The $1.9 trillion economic rescue package that Biden proposed Thursday is significantly larger and more targeted toward the economy’s biggest problems than the stimulus he and President Barack Obama pushed through in 2009. It is not intended to generate enough consumer spending to jolt the nation into a rapid recovery, like a traditional stimulus would in a more normal recession.

It is meant instead to resuscitate economic activity by more aggressively attacking the COVID-19 pandemic through vaccines and testing, and to sustain hard-hit people and businesses until that job is done.

There are other updates to match the shifting politics of the last decade. The package is filled with easy-to-explain provisions, like direct payments to individuals and government subsidies for child care, that could prove more immediately popular with voters than the often-hidden tax cuts included in the 2009 stimulus. This irks some economists and budget experts, who complain that the $1,400 checks, in particular, are an inefficient use of government resources.

Those complaints do not bother Biden and his aides. The Great Recession and its plodding recovery, combined with more than a decade of historically low government borrowing costs and diminishing concerns about a ballooning federal budget deficit in Washington, convinced them that it is better to spend too much on recovery than not enough.

“Every aspect of this plan shows that Biden has learned the lesson from 2009,” said Jason Furman, a former top economist for Obama: “Go big, be explicit, expand what people think is possible.”

Biden’s economic team includes several Obama-era veterans who say they have learned from the last 12 years and the economic and health struggles of the pandemic.

“This plan reflects an assessment of the current economic moment, and when you do that, you end up with a plan that is quite different than prior recessions,” said Brian Deese, who is Biden’s choice to lead the National Economic Council and held several policy roles in the Obama White House.

“If we want to get people back to work, we have to get schools open. If we want to have schools open, we need testing,” Deese said in an interview. He added that “if we want to create a bridge to when the economy is recovering, then we need to provide significant quantities of direct relief. Those are different issues than we saw in 2009.”

Those differences can be seen clearly in large parts of Biden’s new proposal that would not be considered stimulative in any traditional sense of the word.

Its centerpiece is more than $400 billion in spending to fortify the nation’s defenses against the coronavirus. That includes accelerating vaccine deployment and ramping up testing and contact tracing for infections, partly through a federal jobs program that would hire 100,000 people in those areas.

Paul Romer, the Nobel Prize-winning economist from New York University who has urged lawmakers to significantly increase their spending on testing, said Biden’s call to put $50 billion toward testing efforts “would make a huge difference” to the economy. Such an investment, he said, “would probably get us to the point where it is actually true that for the next 12 months, anyone who wants to get tested really can get tested.”

The COVID-19 funding also includes more than $100 billion for safety measures in schools, with a goal of reopening most kindergarten-to-eighth-grade schools within 100 days. If that succeeded, it would help potentially millions of parents, largely women, return to full-time work.

The other $1.5 trillion in the package is meant to help individuals, governments and, to a lesser degree, businesses that have taken the brunt of the damage since the pandemic recession began last year. It includes expanded and extended benefits for unemployed workers, aid for renters facing eviction and help for low-income families facing food shortages.

The plan also mandates — and funds — paid leave for most workers and provides new help for people who lack or have lost health insurance. The $1,400 direct checks are meant to help people who lost hours or income amid the crisis, although they will go to a far wider group that includes people who have not suffered financially in the crisis.

Biden has stressed that such aid will support increased consumer spending, but he and his team cast the goal of distributing the money in more human terms: to ensure as many Americans as possible avoid the scarring damage of homelessness, hunger and the virus itself.

The Biden team and its allies are confident that, if they succeed, the economy will be poised for a roaring rebound. Other policymakers and forecasters, including Jerome Powell, the Federal Reserve chair, have predicted a swift rebound once the virus is under control.

“The recovery from the Great Recession was delayed by years because we failed to act at the scale of the problem,” said Heidi Shierholz, a former Labor Department chief economist who is now at the liberal Economic Policy Institute. “This is a huge break from past mistakes.”

The Biden plan is not, to be clear, the exact plan that many economists, including liberal ones like Furman, would have chosen. The direct checks, which proved a winning political message in the Georgia runoff elections that gave Democrats control of the Senate, will reach millions of Americans who have not lost income amid the pandemic and are most likely to sock the money away in savings.

And its price tag, along with the inclusion of provisions that conservatives have long fought, like increasing the federal minimum wage to $15 an hour, means the package is unlikely to draw much Republican support. Already, lawmakers are warning that it spends too much and is overkill on top of the $900 billion and $2.2 trillion packages passed in December and March.

Some conservative economists say the package spends far more than is necessary to fill what economists call the “output gap,” which is essentially the value of lost performance in the economy because of the recession. They are beginning to warn that pouring too much fuel on the economy risks runaway inflation — the same argument that many made in 2009 and that proved to be wrong.

“A package this size is inadvisable,” said Michael Strain, an economist at the conservative American Enterprise Institute. “It would fill the output gap several times over.”

Some on the left say the plan still does not go far enough. Mark Paul, an economist at the New College of Florida, who estimated last month that the economy needed as much as $4 trillion to fully recover, said that Biden risked Congress refusing to pass more aid if it was needed in the fall.

Biden’s aides say they proposed a package intended to meet the needs of this crisis, having learned from the struggles of the early vaccine rollout and the failure of policymakers to fully bridge people and businesses through months of dampened economic activity as the pandemic raged. They were encouraged to spend as much as they proposed, in part, by the low interest rates and historically anemic inflation that have persisted for more than a decade, which have brought about a change in many economists’ thinking about the advisability of big deficits.

The proposal earned praise Friday from a Federal Reserve official who has urged lawmakers to spend more to help the economy escape the crisis. “It is a big package, but I think it’s appropriate,” Eric Rosengren, the president of the Federal Reserve Bank of Boston, said in an interview on CNBC. “The economy is in a lull right now.”

Many lawmakers have changed their tune on deficits, too. Republicans downplayed deficit concerns while passing President Donald Trump’s signature tax cut package in 2017, and Trump signed trillions of dollars in economic aid packages into law last year, all of which were financed with borrowed money.

In 2009, after a campaign in which Obama had decried rising deficits under President George W. Bush, the Obama team limited its stimulus plans to less than $1 trillion, in part because they feared many Democrats would not go for more. Biden may yet have to scale back his ambitions to unify Democrats in the House and Senate, but even the most conservative members of his party are far more deficit-tolerant today than a decade ago.

“Whatever the combination is of lessons learned, new consensus on fiscal policy or the breadth of the pandemic, there is no question that the need to go big when you can is ingrained in nearly everyone on Team Biden and Democrats broadly right now,” said Gene Sperling, a former National Economic Council director for Obama who advised Biden in the campaign.

WASHINGTON — Joe Biden is inheriting an economic crisis as he assumes the presidency, just as he did when he became vice president a dozen years ago. But this crisis is different and, to the relief of many liberal economists, so is Biden’s response.

WASHINGTON — Joe Biden is inheriting an economic crisis as he assumes the presidency, just as he did when he became vice president a dozen years ago. But this crisis is different and, to the relief of many liberal economists, so is Biden’s response. The $1.9 trillion economic rescue package that Biden proposed Thursday is significantly larger and more targeted toward the economy’s biggest problems than the stimulus he and President Barack Obama pushed through in 2009. It is not intended to generate enough consumer spending to jolt the nation into a rapid recovery, like a traditional stimulus would in a more normal recession. It is meant instead to resuscitate economic activity by more aggressively attacking the COVID-19 pandemic through vaccines and testing, and to sustain hard-hit people and businesses until that job is done. There are other updates to match the shifting politics of the last decade. The package is filled with easy-to-explain provisions, like direct payments to individuals and government subsidies for child care, that could prove more immediately popular with voters than the often-hidden tax cuts included in the 2009 stimulus. This irks some economists and budget experts, who complain that the $1,400 checks, in particular, are an inefficient use of government resources. Those complaints do not bother Biden and his aides. The Great Recession and its plodding recovery, combined with more than a decade of historically low government borrowing costs and diminishing concerns about a ballooning federal budget deficit in Washington, convinced them that it is better to spend too much on recovery than not enough. “Every aspect of this plan shows that Biden has learned the lesson from 2009,” said Jason Furman, a former top economist for Obama: “Go big, be explicit, expand what people think is possible.” Biden’s economic team includes several Obama-era veterans who say they have learned from the last 12 years and the economic and health struggles of the pandemic. “This plan reflects an assessment of the current economic moment, and when you do that, you end up with a plan that is quite different than prior recessions,” said Brian Deese, who is Biden’s choice to lead the National Economic Council and held several policy roles in the Obama White House. “If we want to get people back to work, we have to get schools open. If we want to have schools open, we need testing,” Deese said in an interview. He added that “if we want to create a bridge to when the economy is recovering, then we need to provide significant quantities of direct relief. Those are different issues than we saw in 2009.” Those differences can be seen clearly in large parts of Biden’s new proposal that would not be considered stimulative in any traditional sense of the word. Its centerpiece is more than $400 billion in spending to fortify the nation’s defenses against the coronavirus. That includes accelerating vaccine deployment and ramping up testing and contact tracing for infections, partly through a federal jobs program that would hire 100,000 people in those areas. Paul Romer, the Nobel Prize-winning economist from New York University who has urged lawmakers to significantly increase their spending on testing, said Biden’s call to put $50 billion toward testing efforts “would make a huge difference” to the economy. Such an investment, he said, “would probably get us to the point where it is actually true that for the next 12 months, anyone who wants to get tested really can get tested.” The COVID-19 funding also includes more than $100 billion for safety measures in schools, with a goal of reopening most kindergarten-to-eighth-grade schools within 100 days. If that succeeded, it would help potentially millions of parents, largely women, return to full-time work. The other $1.5 trillion in the package is meant to help individuals, governments and, to a lesser degree, businesses that have taken the brunt of the damage since the pandemic recession began last year. It includes expanded and extended benefits for unemployed workers, aid for renters facing eviction and help for low-income families facing food shortages. The plan also mandates — and funds — paid leave for most workers and provides new help for people who lack or have lost health insurance. The $1,400 direct checks are meant to help people who lost hours or income amid the crisis, although they will go to a far wider group that includes people who have not suffered financially in the crisis. Biden has stressed that such aid will support increased consumer spending, but he and his team cast the goal of distributing the money in more human terms: to ensure as many Americans as possible avoid the scarring damage of homelessness, hunger and the virus itself. The Biden team and its allies are confident that, if they succeed, the economy will be poised for a roaring rebound. Other policymakers and forecasters, including Jerome Powell, the Federal Reserve chair, have predicted a swift rebound once the virus is under control. “The recovery from the Great Recession was delayed by years because we failed to act at the scale of the problem,” said Heidi Shierholz, a former Labor Department chief economist who is now at the liberal Economic Policy Institute. “This is a huge break from past mistakes.” The Biden plan is not, to be clear, the exact plan that many economists, including liberal ones like Furman, would have chosen. The direct checks, which proved a winning political message in the Georgia runoff elections that gave Democrats control of the Senate, will reach millions of Americans who have not lost income amid the pandemic and are most likely to sock the money away in savings. And its price tag, along with the inclusion of provisions that conservatives have long fought, like increasing the federal minimum wage to $15 an hour, means the package is unlikely to draw much Republican support. Already, lawmakers are warning that it spends too much and is overkill on top of the $900 billion and $2.2 trillion packages passed in December and March. Some conservative economists say the package spends far more than is necessary to fill what economists call the “output gap,” which is essentially the value of lost performance in the economy because of the recession. They are beginning to warn that pouring too much fuel on the economy risks runaway inflation — the same argument that many made in 2009 and that proved to be wrong. “A package this size is inadvisable,” said Michael Strain, an economist at the conservative American Enterprise Institute. “It would fill the output gap several times over.” Some on the left say the plan still does not go far enough. Mark Paul, an economist at the New College of Florida, who estimated last month that the economy needed as much as $4 trillion to fully recover, said that Biden risked Congress refusing to pass more aid if it was needed in the fall. Biden’s aides say they proposed a package intended to meet the needs of this crisis, having learned from the struggles of the early vaccine rollout and the failure of policymakers to fully bridge people and businesses through months of dampened economic activity as the pandemic raged. They were encouraged to spend as much as they proposed, in part, by the low interest rates and historically anemic inflation that have persisted for more than a decade, which have brought about a change in many economists’ thinking about the advisability of big deficits. The proposal earned praise Friday from a Federal Reserve official who has urged lawmakers to spend more to help the economy escape the crisis. “It is a big package, but I think it’s appropriate,” Eric Rosengren, the president of the Federal Reserve Bank of Boston, said in an interview on CNBC. “The economy is in a lull right now.” Many lawmakers have changed their tune on deficits, too. Republicans downplayed deficit concerns while passing President Donald Trump’s signature tax cut package in 2017, and Trump signed trillions of dollars in economic aid packages into law last year, all of which were financed with borrowed money. In 2009, after a campaign in which Obama had decried rising deficits under President George W. Bush, the Obama team limited its stimulus plans to less than $1 trillion, in part because they feared many Democrats would not go for more. Biden may yet have to scale back his ambitions to unify Democrats in the House and Senate, but even the most conservative members of his party are far more deficit-tolerant today than a decade ago. “Whatever the combination is of lessons learned, new consensus on fiscal policy or the breadth of the pandemic, there is no question that the need to go big when you can is ingrained in nearly everyone on Team Biden and Democrats broadly right now,” said Gene Sperling, a former National Economic Council director for Obama who advised Biden in the campaign.

A second economic crisis for Biden, but a different first response

US President-elect Joe Biden has assured more economic relief for the coronavirus pandemic now, adding he would deliver a plan costing "trillions" of dollars next week.

Biden, introducing several members of his economic team, spoke on Friday after data showed the US economy lost jobs for the first time in eight months in December as a resurgent Covid pandemic shuttered restaurants and other businesses.

Speaking to reporters as he announced his nominees to head the Commerce and Labour departments, the president-elect said action was needed to help Americans get to the other side of the health and economic crisis, and to "avoid a broader economic cost that exists out there, that will happen due to long term unemployment, hunger, homelessness and business failings."

He also called for raising the minimum wage to $15, a campaign promise, and for sending out $2,000 in direct cash payments. Democrats sought those cash payouts in the last relief bill, passed in December, but only were able to get Republicans to agree to $600.

Biden said the proposal includes relief for state and local governments grappling with the pandemic, as well as new support for people who lost their jobs or cannot afford rent.

"We need more direct relief flowing to families, small businesses, including finishing the job of getting people that $2,000 relief direct payment. $600 is simply not enough," he said. 
Biden said he would unveil the plan on Thursday.

The Democrat, who takes office on January 20, emerged emboldened from a pair of Senate elections this week in Georgia that handed Democrats a majority in that chamber to complement control of the House of Representatives. The majorities could allow Biden to pass larger spending bills.

Biden's initial plan was for a bill under $1 trillion but he said on Friday that "economic research confirms that with conditions like the crisis today, especially with such low interest rates, taking immediate action - even with deficit financing - is going to help the economy."

(with inputs)

US President-elect Joe Biden has assured more economic relief for the coronavirus pandemic now, adding he would deliver a plan costing "trillions" of dollars next week.

US President-elect Joe Biden has assured more economic relief for the coronavirus pandemic now, adding he would deliver a plan costing "trillions" of dollars next week. Biden, introducing several members of his economic team, spoke on Friday after data showed the US economy lost jobs for the first time in eight months in December as a resurgent Covid pandemic shuttered restaurants and other businesses. Speaking to reporters as he announced his nominees to head the Commerce and Labour departments, the president-elect said action was needed to help Americans get to the other side of the health and economic crisis, and to "avoid a broader economic cost that exists out there, that will happen due to long term unemployment, hunger, homelessness and business failings." He also called for raising the minimum wage to $15, a campaign promise, and for sending out $2,000 in direct cash payments. Democrats sought those cash payouts in the last relief bill, passed in December, but only were able to get Republicans to agree to $600. Biden said the proposal includes relief for state and local governments grappling with the pandemic, as well as new support for people who lost their jobs or cannot afford rent. "We need more direct relief flowing to families, small businesses, including finishing the job of getting people that $2,000 relief direct payment. $600 is simply not enough," he said. Biden said he would unveil the plan on Thursday. The Democrat, who takes office on January 20, emerged emboldened from a pair of Senate elections this week in Georgia that handed Democrats a majority in that chamber to complement control of the House of Representatives. The majorities could allow Biden to pass larger spending bills. Biden's initial plan was for a bill under $1 trillion but he said on Friday that "economic research confirms that with conditions like the crisis today, especially with such low interest rates, taking immediate action - even with deficit financing - is going to help the economy." (with inputs)

Biden to unveil trillions in pandemic economic relief spending next week

China will overtake the United States to become the world's biggest economy in 2028, an analytical report by a think tank has claimed.

This time frame is five years earlier than previously estimated due to the contrasting recoveries of the two countries from the COVID-19 pandemic.

The coronavirus is said to have first broken out in Wuhan, China.

"For some time, an overarching theme of global economics has been the economic and soft power struggle between the United States and China," the Centre for Economics and Business Research said in an annual report published on Saturday.

"The COVID-19 pandemic and corresponding economic fallout have certainly tipped this rivalry in China's favour."

The CEBR said China's "skilful management of the pandemic", with its strict early lockdown, and hits to long-term growth in the West meant China's relative economic performance had improved.

China looked set for average economic growth of 5.7% a year from 2021-25 before slowing to 4.5% a year from 2026-30.

While the United States was likely to have a strong post-pandemic rebound in 2021, its growth would slow to 1.9% a year between 2022 and 2024, and then to 1.6% after that.

Japan would remain the world's third-biggest economy, in dollar terms, until the early 2030s when it would be overtaken by India, pushing Germany down from fourth to fifth.

The United Kingdom, currently the fifth-biggest economy by the CEBR's measure, would slip to sixth place from 2024.

However, despite a hit in 2021 from its exit from the European Union's single market, British GDP in dollars was forecast to be 23% higher than France's by 2035, helped by Britain's lead in the increasingly important digital economy.

Europe accounted for 19% of output in the top 10 global economies in 2020 but that will fall to 12% by 2035, or lower if there is an acrimonious split between the EU and Britain, the CEBR said.

It also said the pandemic's impact on the global economy was likely to show up in higher inflation, not slower growth.

China will overtake the United States to become the world's biggest economy in 2028, an analytical report by a think tank has claimed. This time frame is five years earlier than previously estimated due to the contrasting recoveries of the two countries from the COVID-19 pandemic.

China will overtake the United States to become the world's biggest economy in 2028, an analytical report by a think tank has claimed. This time frame is five years earlier than previously estimated due to the contrasting recoveries of the two countries from the COVID-19 pandemic. The coronavirus is said to have first broken out in Wuhan, China. "For some time, an overarching theme of global economics has been the economic and soft power struggle between the United States and China," the Centre for Economics and Business Research said in an annual report published on Saturday. "The COVID-19 pandemic and corresponding economic fallout have certainly tipped this rivalry in China's favour." The CEBR said China's "skilful management of the pandemic", with its strict early lockdown, and hits to long-term growth in the West meant China's relative economic performance had improved. China looked set for average economic growth of 5.7% a year from 2021-25 before slowing to 4.5% a year from 2026-30. While the United States was likely to have a strong post-pandemic rebound in 2021, its growth would slow to 1.9% a year between 2022 and 2024, and then to 1.6% after that. Japan would remain the world's third-biggest economy, in dollar terms, until the early 2030s when it would be overtaken by India, pushing Germany down from fourth to fifth. The United Kingdom, currently the fifth-biggest economy by the CEBR's measure, would slip to sixth place from 2024. However, despite a hit in 2021 from its exit from the European Union's single market, British GDP in dollars was forecast to be 23% higher than France's by 2035, helped by Britain's lead in the increasingly important digital economy. Europe accounted for 19% of output in the top 10 global economies in 2020 but that will fall to 12% by 2035, or lower if there is an acrimonious split between the EU and Britain, the CEBR said. It also said the pandemic's impact on the global economy was likely to show up in higher inflation, not slower growth.

China to leapfrog US as world's biggest economy by 2028, analysis says

The United States economy expanded at a record 33.4 percent annual pace from July through September.

US Q3 GDP estimate gets a slight upgrade to 33.4% growth

Joe Biden is returning to the White House to lead the United States in the midst of an economic crisis after beating President Donald Trump in Tuesday’s election, but a turn of events likely to conjure an eerie sense of deja vu for the Democratic former vice president.

World Business Watch: New US President to battle economic crisis

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