U.S. should aim for stable economic growth while mindful of future risks

The U.S. economy is making a rapid recovery from the plunge triggered by the coronavirus pandemic. At the same time, however, there are concerns over the course of its future. It is hoped the United States will implement careful policy management to turn this recovery into stable growth.

A preliminary report on U.S. real gross domestic product for the April-June quarter showed an annualized 6.5% rate of growth from the first three months of the year, meaning the country’s economy has now expanded over four consecutive quarters. The figure exceeded the 6.3% annualized growth rate of the January-March quarter.

Real GDP has reportedly surpassed its pre-pandemic level, as recorded in the October-December quarter in 2019, to achieve its greatest size ever.

The robust growth in the U.S. economy has been attributed mainly to personal consumption, which accounts for 70% of the country’s GDP, as it increased by as much as 11.8% from the previous quarter. Sales are recovering not just among retailers, but also in the dining sector.

The U.S. government has pursued a vigorous campaign of COVID-19 vaccinations, while also providing cash benefits to Americans. The Federal Reserve has implemented large-scale quantitative easing. These policies seem to have produced positive results.

The recovery of the U.S. economy, which is the world’s largest, is welcome, as it has considerable effects on the global economy.

Meanwhile, it is necessary to pay attention to future risks the United States is facing. Inflation is a particularly worrisome factor.

The U.S. consumer price index rose 5.4% year-on-year in June, surpassing the 5.0% seen the previous month and increasing by the most in about 13 years.

The Fed has expressed its view that the jump in consumer prices is temporary, noting that more and more people are moving around as the economy reopens, pushing up travel-related costs such as fees for rental cars and flights.

However, the jump in the CPI has also been driven by other factors such as surges in raw material costs. If prices continue to increase at the current pace, the U.S. central bank could scale back its quantitative easing earlier than expected.

Many players in the financial market believe that the Fed could start reducing quantitative easing sometime from the year-end to early next year. There is concern that bringing forward the schedule could have significant impact on the financial market.

When then Fed Chairman Ben Bernanke signaled in 2013 that the central bank would scale down its quantitative easing, the market was sent into a panic as emerging economies’ currencies weakened and stocks fell. It is hoped that the Fed will be careful so that its messaging does not cause a similar panic.

The United States is facing a resurgence in infection cases with the spread of the delta variant that was first detected in India. If the country is forced to reimpose restrictions on economic activities, it is unavoidable that consumer spending will be dealt a blow.

Another concern is that manufacturers have been forced to reduce production of such items as automobiles and smartphones due to a global shortage of semiconductors. Soaring real estate prices have caused a sharp slowdown in housing investment.

To help the economy achieve stable growth, the administration of U.S. President Joe Biden and the Congress should accelerate efforts to implement key policies that have been already mapped out, such as infrastructure investment and support for childcare and education.

— The original Japanese article appeared in The Yomiuri Shimbun on Aug. 5, 2021.