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National Retail Federation officials predict the economy should continue to ‘thrive’ despite current inflation issues

By on May 7, 2022 0

WASHINGTON DC – The economy’s rapid growth may slow somewhat as the Federal Reserve tries to tame inflation over the next few months, but consumers will likely continue to shop as lower inflation dampens the uncertainty, said Jack Kleinhenz, chief economist for the National Retail Federation. Monday, May 3.

“Fed tightening has kicked off a new round of adjustment, and the outlook for interest rates has implications for consumers and businesses,” Kleinhenz said. “The list of uncertainties is growing and the risks are increasing. But the underlying strength and momentum in the consumer and business sectors should offset a slight slowdown and should help the economy move forward this year. »

While the Fed’s actions could mean higher car and mortgage payments, Kleinhenz said household finances remained strong despite consumer worries about inflation and the war in Ukraine. the 4% increase year over year retail sales in March showed that consumers have the willingness and ability to spend due to job growth, wage gains and wealth accumulated during the pandemic as well as low financial obligations relative to income .

Kleinhenz’s remarks appeared in the May issue of NRF’s Monthly Economic Reviewwho said inflation, while still strong, is expected to ease in 2022, in part because year-on-year comparisons will be against already high spending levels in 2021. Fiscal and monetary policies by the Fed and other agencies that have combined ongoing pandemic-induced supply issues to boost inflation are coming to an end.

The “first whiff” of current inflation came in April 2021, when the Bureau of Economic Analysis’ Personal Consumption Expenditure Index – the Fed’s preferred measure of consumer inflation – jumped 3, 6% over the previous year, according to the report. That was double the rate at the start of 2021 and the highest in 13 years. PCE inflation stood at 6.6% in March, the highest in decades, and the Fed now expects it to end 2022 at 4.3% even as the numbers for this year “exceeds” last year’s growth.

The Fed is working on two fronts to slow inflation. First, he raised interest rates by a quarter of a percentage point in March and is expected to slowly raise the federal funds rate to between 2.5% and 2.75% in 2023 – the highest level since mid-2020. the Great Recession in 2008. Second, this month it will likely begin to reduce its assets, which doubled to about $9 trillion during the pandemic. The sale of its balance sheet of government-backed and mortgage-backed securities is expected to affect long-term interest rates and reduce the monetary stimulus provided by the Fed.

“The Fed faces a difficult problem,” Kleinhenz said. “His handbook of tightening monetary policy may put pressure on demand. However, it does not have the direct ability to influence supply by producing more gas, planting needed crop fields, or making microchips.

The NRF’s annual forecast predicts that retail sales for 2022 increase between 6% and 8% between $4.86 trillion and $4.95 trillion.