Fed’s Kaplan Sees US Economic Growth Accelerating in 2021
Fed’s Kaplan Sees US Economic Growth Accelerating in 2021
Fed talk last week was conflicting, as it often is. It reminds me of the oft quoted phrase by former Federal Reserve chairman Alan Greenspan, who reportedly said: “If I seem unduly clear to you, you must have misunderstood what I said.” Nevertheless, the takeaway from Fed comments last week appears that the U.S. economy continues to be on the mend. Yes it will be fits and starts, but the direction is right. That would seem to support the equity rally we’ve seen from lows.
For example, Dallas Federal Reserve President Robert Kaplan said America’s growth will accelerate in 2021—which we’ve been saying, by the way—as the coronavirus spread slows. “In ’21, we will see an above-trend growth, and we will continue to grind down the unemployment rate,” Kaplan said on CNBC’s “Closing Bell” on Tuesday. He believes the US will see a 4.5%-5% contraction in 2020.
Seconding him was Fed New York head John Williams, who said Thursday on Yahoo Finance that expected to see positive economic momentum in the second half of the year. Of course, previous to that, Kaplan said Monday that the burst of activity seen in April and May is possibly easing, due to the resurgence of COVID-19 in some states, like California.
The latest data is encouraging. U.S. Industrial production—a measure of output at factories, mines and utilities—rose a seasonally adjusted 5.4% in June from May, the Fed said Wednesday, bigger than the 4% anticipated by economists surveyed by The Wall Street Journal. Despite the recent gains, the index for the second quarter as a whole fell at an annual rate of 42.6%, the largest quarterly decrease since World War II.
Friday saw evidence of continued recovery in June, when retail sales soared 7.5% over the prior month and 1.1% over the prior year, topping expectations for a 5% rise.
Jobless claims, however, showed another 1.3 million workers filed first-time claims for unemployment insurance. Including pandemic unemployment assistance claims, 2.4 million workers filed for unemployment last week. Not so good.
On the other hand, the average 30-year fixed mortgage rate was below 3%, its lowest level in almost 50 years. Housing is a big part of the economy. Of course, people need jobs to buy houses.
So is this a pause, like Kaplan says? We’ll find out soon enough if the market is anticipating some semblance of normality in 2021.
The yield on the benchmark 10-year U.S. Treasury is 0.63% down from 0.64% last week.
Next FOMC meeting: July 28-29. For the moment, little in the way of substantial changes in Fed policy expected.
