Data on the US economy last week showed that an annual growth rate (2021) is expected at 6.8% of GDP. At the same time, business profits for Q12021 are expected to increase by close to 36%. Continued price growth in stocks and commodities continues.
this idyllically beautiful and optimistic image can be destroyed by the emergence of a sharp tapering in the fixed income markets. In such a situation, the dilemma will arise that the recovery will continue to be supported without undermining market stability.
by Trust Economics-https://trusteconomics.eu
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When does tapering situation occur in the fixed income markets?
1. When inflation escapes or destabilises at ever-increasing rates above the maximum target of 2%.
This will, of course, depend to a large extent on the degree of productivity growth. If the degree of growth is strong then inflation in the US will exceed the annual target of 2%. Here, the FED should include in its calculations in the CPI (Consumer Price Index) and investment expenditure in real estate since prices in this market are constantly increasing particularly in privileged areas.
2. The labour market will have to become very tight.
Unemployment rates can quickly de-escalate to levels that put pressure on wage levels and prices. So, far the figures show a lag in the entry of a significant part of the labour force into the labour market, in terms of young people and low-paid workers.
However, the labour market is affected by the allowances granted but also by workers who are reluctant to enter the labour market because of non-vaccinations or fear of the ongoing pandemic.
The yield on the 10-year US T-Bond below 1.60% indicates a course that if continued at the end of the year will approach more than 2%.
Rising inflation in the US will affect the USD-€ exchange rate and will sooner or later force the ECB to adjust its monetary policy accordingly.
