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The US economy is recovering steadily. Given the long-term super-soft monetary policy, the growth of the commodity market, and the growth of demand — inflation risks are increasing. If macroeconomic metrics continue to improve, the Fed is likely to tighten monetary policy earlier than planned. US federal funds rate futures indicate that the key interest rate will be increased by the end of 2022.
At the last meeting of the FOMC (Federal Open Market Committee of the Fed), the current buyback volumes were maintained: $80 billion per month for Treasury Securities and $40 billion per month for mortgage-backed securities. At the same time, the committee is ready, in the event of a rapid economic recovery, to discuss changes in the purchase of assets at upcoming meetings. This may happen closer to the fourth quarter of this year, based on the dynamics of labour market recovery. For monetary authorities, it is the main guideline metric regarding future monetary policy.
The markets continue to show “risk-on”. The current values of derivatives on the VIX volatility index are at their lows, but in May there was a fairly high trading volume on them, which indicates nervous investor sentiment. Although the buyback programs are still in order, the market may include future negative expectations and enter the correction phase.
US INFLATION
Annual inflation in the USA accelerated in April and amounted to 4.2%, exceeding all forecasts.
Inflation in the United States (excluding food and energy prices) in April was at an annualized rate of 3%, and over the month, prices rose by 0.9%. Both indicators turned out to be higher than the market forecast, which expected the values at the level of 2.3% and 0.3%, respectively. The Labor Department indicated that the monthly price increase was the highest since April 1982.
Consumer Price Index
Producer Price Index (PPI)
Consumption expenditure
Consumption: Durable Goods
5-year expected inflation rate is 2.6%
US EMPLOYMENT
US labour market is continuously strengthening. The number of initial claims for unemployment benefits decreased in May, down to 444 thousand. Nevertheless, the unemployment rate is still two times higher than pre-crisis levels.
Number of initial applications for unemployment benefits
In March, the number of vacancies in the United States rose to a record level since 2000 — to 8.1 million This indicates a labour shortage, even with support programs. Closer of support programs, an increase in the number of vaccinated, and the end of lockdown measures will affect the recovery of the labour market, and this, in turn, will contribute to increased inflation.
Number of vacancies
APPLICATIONS FOR NEW CONSTRUCTION OF HOUSES IN THE USA
High inflationary expectations and low-interest rates are driving demand for real estate. The number of building permits (a leading indicator of investment in the real estate market) in April slowed slightly relative to March values and amounted to 1.76 million. However, this is 13.5% higher than the pre-pandemic peak, which was noted in January 2020.
New construction applications
