OPINION: As it turns out, US central bank boss Jerome Powell, was correct in employing the term “transitory”. His mistake was to apply it to US inflation, rather than growth.
, Dudley argues persistent price rises have forced the Fed to make pushing inflation back to around the 2 per cent target its main priority, rather than supporting economic activity and employment.But what makes Dudley’s warning particularly chilling is his argument that “the current economic expansion is uniquely vulnerable to a sudden stop”.
In addition, the massive fiscal stimulus introduced during the pandemic has left balance sheets in good shape. That will continue to support demand, which is outstripping supply in some sectors. At the same time, the end of pandemic stimulus measures will act as a drag on economic growth, and consumers will have run through their savings buffers.“As inflation outstrips wage growth, the personal savings rate has plummeted from 26.6 per cent in March 2021 to 4.4 per cent this April, significantly below its long-run average.
Already cracks are beginning to appear in the balance sheets of US households, as the US share market slides, and as the once red-hot US housing market cools.US figures released this week showed sales of existing homes continued their slide in May, as potential purchasers reacted to the triple whammy of higher house prices, rising interest rates and a fall in real incomes.
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