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The United States 2010: Hopes of recovery and fears of uncertainty
Thu, Dec 31 2009, 13:18 GMT
by ecPulse.com analysis team
The U.S. economy is widely expected to continue its recovery from the worst financial crisis since the Great Depression which indeed led the economy into the worst recession since WWII, where the U.S. economy started to grow during the third quarter of 2009, and from that point the U.S. economy never looked back as it continued to expand though over a slow and a sluggish pace.
2010 will probably mark a recovery year for the U.S. economy, as seemingly the recession is indeed over, yet expectations over how long will it take for the economy to return back to its long term growth potentials still vary among analysts, yet most believe that the world’s largest economy will continue to shake off the aftermath of the credit crunch before it can meet its long term growth potentials in 2011.
The Federal Reserve Bank expects the economy to recover over a gradual and a slow pace in 2010, while inflation is also expected to remain subdued, while unemployment is also expected to edge lower in 2010 inline with the expected recovery which is expected to continue through 2010. Moreover, the Feds are set to end several liquidity programs in 2010 including the MBS, Agency Debt purchases program.
Gross Domestic Product is expected to expand in 2010 after contracting by almost 2.50% in 2009, where median estimates signal that the U.S. economy will be able to expand by an annual rate of 2.60% in 2010 and by 2.80% in 2011, though the Fed expects the U.S. economy to grow by an annual rate of 3.00% in 2010 and by 3.95% in 2011.
As for inflation, the Feds expect inflation to remain well under control in 2010, where the Feds’ favorite indicator for inflation, core PCE is expected to rise by an annualized 1.25% in 2010, while CPI is expected to rise by an annualized 1.45% in 2010.
However, expectations from major financial institutions around the globe signal that inflation will rise in the United States in 2010, where CPI is expected to rise by an annualized 2.05% and to continue rising through 2011 by 2.20%, while core PCE is expected to rise by an annualized 1.30% in 2010.
The huge amounts of liquidity that were pumped into the financial system might indeed lead to an increase in upside risks to inflation, as inflation is a result of increased money supply, yet given that the velocity of money was still weak during the recession, we didn’t witness a strong rise in inflation rates, while adding to that the possibility that energy prices might continue to rise in 2010, we shouldn’t exclude the possibility of soaring inflation rates in 2010.
Energy prices are still expected to remain rather stable in 2010, where median estimates signal that oil prices will continue to fluctuate around the $70s a barrel levels, yet as the recovery prevails and becomes more pronounced, production levels will increase drastically on a global scale and that will probably lead energy prices to increase as well.