5 things expert David Bieri says could impact the U.S. economy
The post-pandemic strength of the U.S. economy is likely to continue with recent strong employment numbers, however tensions abroad in Russia and Ukraine could impact economic stability, according to Virginia Tech economist David Bieri.
Bieri explains five things that could impact the U.S. economy in the coming months:
- Inflation: While the recent uptick in inflation to as much as 7 percent is the largest in 40 years, there are some signs it is temporary and entirely related to the strong bounce back of the U.S. economy from COVID where aggregate demand has been outpacing supply. The biggest contributors for urban consumers have been increases in house prices and rents as well as the very sharp increase in gasoline.
- Unemployment: The post-pandemic strength of the U.S. economy is likely to continue with strong employment numbers, but with the undesirable flip-side that short-term labor shortages might affect consumers negatively with fewer options, as firms adjust and continue to compete for the pent-up spending power of post-pandemic households. However, this is likely to lead to both efficiency gains - better service with less, more automation - and more options as entrepreneurs explore new opportunities.
- Fed policy: To combat the uptick in inflation, the Federal Reserve is likely to raise short-term rates at the March 16 meeting later this month, and by some market sentiment up to another additional five times later this year for a total of 1.75 percent up from the current 0-0.25 percent range. While this might dampen growth, it is good news for savers.
- Russia-Ukraine: With conflicts abroad, geopolitical tension usually manifests itself in a lack of investor confidence as general levels of uncertainty increase. This usually takes three distinct forms:
- Stock market volatility due to shaky investor sentiment;
- Flight to safe assets like U.S. Treasury notes and bonds;
- Upward pressure on the price of oil.
- Gold, cryptocurrency: The major stock market adjustment last month convinced some investors to seek out new opportunities in the rapidly growing market for crypto-assets, including Bitcoin, Etherium, Solana, Helium and others. Yet these assets have remained extremely volatile — so much so that some have argued that they have failed the first big test of providing a reasonable investment alternative that can act as a store of value. The other traditional safe haven asset is gold — an investment that the great economists John Maynard Keynes called “barbarous relic” because its value did not stem from anything related to modern economic life.
David Bieri is an associate professor in the School of Public and International Affairs and an associate professor of economics. He also holds an appointment in the Global Forum on Urban and Regional Resilience. His teaching interests are at the intersection of public finance, monetary theory and history of economic thought. He has held various senior positions at the Bank for International Settlements in Basel, Switzerland. Prior to his work in central banking, he worked as in investment banking in London and Zurich. View Bieri’s full bio.
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