Richmond Fed executive: things are looking up for 2021 and beyond
The Federal Reserve’s preferred inflation measure has shot up, but members of the Federal Open Market Committee (FOMC) don’t anticipate interest rates to rise any time soon. In fact, 2021 is expected to show very strong economic growth as a result of high demand, a successful vaccination rollout and fiscal support from the federal government. Virginia’s diverse economy is performing comparably to the country overall. Employment lags, however, and the recovery will not be evenly felt in all sectors or among all members of society.
These are just a few of the views shared by Renee Haltom, vice president and regional executive of the Federal Reserve Bank of Richmond, during her June 29 “Economics Viewpoint” presentation hosted by the VCU Risk Management and Insurance (RMI) Program, and moderated by Jenni Lee Crocker, managing director and Virginia office head of Marsh McLennan. Haltom’s talk was the second in a quarterly virtual series entitled “RMI Trends Talks.”
After clarifying that her views were her own and did not represent those of Richmond Fed or Federal Reserve System, Haltom presented a slideshow packed with data and peppered with business anecdotes. Highlights included:
- Recovery is well under way – Barring unforeseen virus developments, unusually strong economic growth is on the horizon in 2021. Demand is back, driven by strong consumption, manufacturing, and housing. That GDP recovery has been stronger and faster than expected speaks to the resilience of the American economy. In fact, the U.S. economy produced in 2020 98% of what it did in 2019.
- Services hit harder than goods — Services (esp. in leisure and hospitality) were most severely hit, as compared with goods.
- Unemployment remains high – The U.S. is still down 7.6 million jobs relative to pre-COVID numbers, which means we’ve recovered two-thirds of what we lost. COVID hit low-wage sectors the hardest. Businesses aggressively sought efficiencies while others implemented automation. All sectors are improving. Hardest hit sectors are coming back fastest, but still have far to go.
- Jobs are available, but it’s hard to find workers – The job openings rate is at a record high, but the hires rate is low. Workers are slow to come back due to fiscal support and the search for the right positions, as well as ongoing childcare challenges and work-related health concerns.
- Fiscal policy will continue to help the economy – Though COVID-related stimulus checks and unemployment insurance will eventually end, a lot of fiscal policy ended up in savings that will likely continue to fuel the economy for some time.
- Manufacturing remains strong but supply chain remains a concern – Manufacturers report strong momentum, but input production is behind, global ports are backed up and it remains difficult to get goods out of China. The prices of raw materials also have soared.
- Housing market shows high demand – Low interest rates drove high demand for housing. Millennials finally entered the housing market and there has been a COVID-driven exodus from big cities to suburbs, all while older homeowners delayed downsizing and the inventory of homes is limited.
- COVID worsened disparities – Employment gaps between employed white and Black Americans had been closing before the pandemic but COVID reinstated the previous gaps. Women of color were hit hardest.
- Outlook for inflation and interest rates – Surging demand and limited supply is a textbook recipe for higher prices but those are likely to be relieved as supply chain issues are resolved. Though inflation expectations are rising, price pressures seem temporary and FOMC policymakers don’t anticipate interest rates rising until 2022 at the earliest.
View Haltom’s presentation in its entirety here.
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The next RMI Trends talk will be Tuesday, September 21 featuring Beth Waller, principal, Woods Rogers and will address navigating the risk of sensitive data.