Is the US Economy on the verge of a huge swing up? Fed feel so

After a battered 2020, the U.S. economy is estimated to witness its strongest growth in nearly 40 years. The Federal Reserve, on Wednesday, said it expects a better than expected growth this year. This comes as good news not just for the U.S. but other economies and financial markets as well.

Fed forecast better than expected rebound

On Wednesday, the U.S. central bank said it expects much stronger growth this year than its earlier forecasts. The rising vaccination rates and the announcement of another relief package would play a crucial role in strengthening the economy.

“The (stimulus) checks are going out … COVID cases are coming down. Vaccination is moving quickly,” Fed Chair Jerome Powell said.

The Federal Reserve forecast growth of 6.5% this year, up from their earlier estimate of 4.2%. This 6.5% growth in the gross domestic product would be the biggest ever since 1984.

In fact, the central bank expects the economic growth for the next two years to be ahead of the estimated long-term potential growth. For 2022 and 2023, the Fed forecast economic growth of 3.3% and 2.2%, respectively, compared to the potential long-term growth of just 1.8%.

The central bank is also optimistic about the recovery in the jobs market. By the end of the year, the unemployment rate is forecasted to drop to 4.5%, from its current 6.2%. And, by the end of 2022, the rate is forecasted to drop to near a healthy level of 3.9%.

Even though the inflation is expected to rise to 2.4% (well above the central bank’s 2% target), the Fed has promised to keep the benchmark overnight interest rate near zero. The Fed expects the inflation rate to drop to 2% in 2022 and 2.1% in 2023.

In order to keep the long-term borrowing costs down, the Fed also plans to continue buying $120 billion bonds each month.

Financial markets already in mood

Fed’s Wednesday briefing gave another reason for the financial markets to edge even higher. The Dow Jones Industrial Average and the S&P 500 index ended the day at record highs.

It must be noted that Fed’s announcement doesn’t surprise much and mostly reiterates what the financial markets have been feeling over the past few months. Global markets are witnessing a strong rebound, and the U.S. IPO market is no different.

Several companies have already filed an IPO this year, and any more are in the queue, including some of the US Forex brokers. Robinhood Markets, a no-commission trading app, is expected to go public in the coming months. Also, eToro, a Multi-asset investing and trading platform and Robinhood competitor, recently announced its plan to go public through SPAC FinTech Acquisition Corp. V.

Apart from these two, other big IPOs expected this year are Bumble (parent company to the eponymous Bumble dating app), Instacart (the grocery delivery app), Roblox (a gaming platform), Nextdoor (neighborhood-focused social media and news app), Coinbase (a leading cryptocurrency exchange), UiPath (a big name in the robotic process automation space), ThoughtSpot (a technology and analytics company), and more.

 

Image courtesy of Ronnie Chua/Shutterstock

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