US President Joe Biden is pleased with the economic data presented yesterday. During a speech he highlighted the successes, which were met with loud applause. But according to economist Han de Jong, there is a ‘red flag’.
However, the figures speak for themselves, thinks De Jong. Inflation in the US has been declining for 6 consecutive months and is even lower than that of the Netherlands. Also, the number of jobs is on the rise and incomes are on the rise. And unlike Europe, core inflation in America has also been declining for several months. “Biden had an interesting history, but this kind of speech doesn’t excel at critical self-reflection.”
The question, according to De Jong, is whether the good economic news is also the result of Biden’s policy. “After taking office, he launched a large stimulus package, which turned out to be too big, so that inflation became much higher than if that package hadn’t been introduced.”
Recover
What was most striking about Biden’s speech, however, according to De Jong, was the emphasis on bringing industrial activity back to the United States. “In our type of economy, we have seen for decades that the service sector is growing and manufacturing is shrinking. And that is now being reversed.’ There are several reasons for this, says De Jong. «On the one hand because it would make an economy less vulnerable. And on the other hand, industry offers many well-paid jobs, more than in the service sector.’
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Interest decision
The United States government has with the Inflation Reduction Act (IRA) a large new grant package for the business community. De Jong does not think that this package will also increase inflation, as he did immediately after Biden took office. ‘There are also tax increases in this package. And on paper this seems to stimulate only a part of the economy.
On the other hand, the US central bank, the Fed, will also closely monitor developments regarding the IRA, thinks De Jong. The central bank will announce a new interest rate decision next week. A new increase will in all likelihood follow, albeit at a slower pace. “No more than a quarter is expected for Wednesday.”
Vulnerability
According to De Jong, the vulnerabilities for further growth of the US economy lie mainly there. “A big question is whether the Fed is tightening too much.” Interest-rate sensitive sectors such as the housing market and construction are cooling off sharply and, furthermore, US consumption continues well, “but American households are now saving less than before the pandemic.” The question is how long it will be sustainable in combination with consumption growth once people save.’
Finally, De Jong looks to the yield curve, a “red flag”. Short-term interest rates are now higher than long-term interest rates. In previous cases, this was always a sign of an impending recession. Maybe now things are different, but so far so good and fingers crossed.’
Source: BNR
Sharon Rock is an author and journalist who writes for 24 News Globe. She has a passion for learning about different cultures and understanding the complexities of the world. With a talent for explaining complex global issues in an accessible and engaging way, Sharon has become a respected voice in the field of world news journalism.
