Recovery from the pandemic remains the primary driver of economic performance as we head into summer. Social restrictions are being lifted, and we are seeing a resurgence in travel. Travel is still down from pre-pandemic levels but a massive recovery from 2020.
While the economic recovery is underway and gaining momentum, the pandemic continues to wreak havoc on the global front with the emergence of COVID-19 variants causing concern to the pace of a global recovery. The impact of variants on the effectiveness of vaccines remains unknown and is considered a risk to the economy.
The Federal Reserve continues to reiterate that accommodation is still appropriate and remains firm in its commitment to continue to support the economy from a monetary policy perspective. The central bank has kept its benchmark rate at near-zero levels and has not yet made any major changes to its asset purchase program. The Federal Open Market Committee (FOMC) has been clear it will be patient when it comes to unwinding asset purchases, a precursor to rising rates.
Gross domestic product rose 6.4% in the first quarter of 2021, just below the 6.5% rise that was expected. This follows a relatively subdued 4.3% gain in the fourth quarter of 2020, hampered by renewed coronavirus controls implemented during the holiday season.
The first quarter increase reflects the continued economic recovery, reopening of establishments and continued government stimulus related to the pandemic. The nature of the recovery has been uneven as millions of Americans continue to return to the labor market. Inflation has been the hot ticket item over the past few months with the FOMC believing the pressures causing the rise are “transitory” and will settle down once the post-COVID surge cools off.