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April 14, 2021

Economists advise caution against overheating as US economy recovers

By Paul Dennis

14 April

Greg Ip, a journalist and the chief economics commentator for The Wall Street Journal (WSJ), retweeted a labour market perspective that supports optimism about the economy if the vaccine-aided recovery is not complicated by Covid infections and/or new emerging variants.

Economists believe that the US Federal Reserve could not foresee Covid-19 when it switched from a preventive to a reactive approach.

Now it has to be careful not to overcorrect

Classical traditional economists believe that the shift in the monetary policy framework of the Fed from a forecast-based approach to an outcome-based one is possibly a policy mistake in the making.

Sequencing of such policy actions could lead to bouts of inflation that are difficult to control or reverse.

Another perspective stressed on the importance of the Fed to meet its inflation and employment objectives to revive the economy and prevent long-term Covid-induced effects.

The Fed’s reactive policy approach risks amplifying margin debts to record levels may be leading to financial near-accidents this year, experts opine.

However, the absence of a new headwind from Covid infections and new virus strains is set to cause the US economy to boom this year.

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