Published May 1, 2020, 8 p.m. EST
- The U.S. economy in the first quarter of 2020 shrunk by 4.8%, and the second-quarter is expected to be five times worse due to the partial shutdown of the economy.
Consumption plunged at a rate never before experienced, according to the newly released data from the U.S. Bureau of Economic Analysis.
Right now, a severe contraction is underway. The consensus forecast of the 60 economists surveyed in early April by The Wall Street Journal was that the U.S. would shrink 25.3% in the second quarter, and this terrible quarter would be followed by strong economic growth of more than 6% for the next three quarters. These economists are the top names in the field.
With Americans under stay at home edicts in March, and not consuming, the savings rate boomed. And this is not the only anomalous piece of good news.
Inflation is nowhere near the Federal Reserve's 2% target. The inflation index against which the Fed sets policy, the Personal Consumption Deflator (PCED) has been at trending at 1.5% for a decade, and it does not look like we're headed toward the 2% rate of inflation anytime soon. That means the Fed can expand the money supply without worrying much about rousing inflation.
With inflation low even though interest rates are near zero, liquefying the economy through U.S. Government largesse via the Paycheck Protection Program, Supplemental Nutrition Assistance Program (SNAP), and boosting unemployment insurance compensation payments, adds a negligible amount to the long term debt.
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