June 10, 2021


The latest round of $1,400 tax stimulus checks sharply boosted retail sales.   The virus is rapidly getting under control and some epidemiologists expect herd immunity to be achieved by May.  Given all of that, we  expect 10.0% GDP growth in the second quarter, and GDP growth for 2021 of 8.0% followed by 4.8% GDP growth in 2022.

If that path is correct GDP will get back to its pre-pandemic level in the second quarter.  However, the Fed seems to be comparing it to some projected growth path that it would have presumably attained if the recession had never occurred.  On that basis, GDP will completely erase the impact of the recession in Q4 of this year.

Given the GDP forecast above, we expect the unemployment rate to decline to 4.1% by the end of this year, and to 3.6% by the end of 2022.

Given the recent rapid increase in money supply growth, he core inflation rate should rise from 1.6% last year to 4.5% in 2021 and 3.4% in 2022.

The Fed has pledged to keep the funds rate at 0% through 2023.  A moderate pickup in the core CPI should  boost the 10-year note rate from 1.6% currently to 1.8% by the end of 2021 and 2.3% by the end of 2022.

Stephen Slifer


Charleston, SC