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It is astonishing how quickly things shift gears in the world we live in today. I recall a hot-button debate underway regarding the hazards of economic growth being witnessed by the United States. The experts mulled over the timeline appropriate enough for the Federal Reserve to taper its asset purchase program and hike interest rates. I vividly recall the headline in The Wall Street Journal: “Higher Inflation Is Here to Stay for Years, Economists Forecast”. However, while many contested the Fed’s decision to delay a hawkish push for a liberal rebound of the economy, a few weighed the possibility of a dampening economic turnaround or a return of the pandemic. Primarily because of how unlikely the scenarios seemed (even to myself) that currently define the reality of the world’s largest economy. This reality is baffling. As simple as that.

As both the Trump and Biden administrations poured stimulus payments into the economy, a popular conception was that the growth was inevitable. Don’t get me wrong, it sure was. When I look back a few months ago, the American economy was bustling beyond expectations. Markets raced to register records while the national GDP surpassed pre-pandemic levels. In March alone, approximately 80,000 jobs were created. The labor productively pivoted the economy to maintain an above 6% growth rate – up from an average 2.3% growth sustained by the U.S. economy since 2010. Clearly, the economy was booming at an acceleration hardly anyone could have predicted.

Many economists urged the Fed to consider a contractionary shift in the next policy meeting: following through with the hawkish cues given by Fed Chairman Jerome Powell. The released Fed minutes implied a growing voice within the board to taper as early as November 2021. However, the Fed maintained its vague approach of monitoring inflation while allowing a liberal hand to the economy. Yields on the T-note surged past pre-pandemic levels as inflation peaked beyond the 2% mark. The sentiments clearly implied that people were interested in spending just like the Fed anticipated. Everything seemed on track.

Then came the summer and the supply bottlenecks contributed more to the price surge as wages nudged higher along with the cost of raw material. The Federal Reserve again played its prerogative over inflation, deeming the supply constraints to resolve overtime while workers to join the economy once the stimulus payments evaporated. Things seemed simple enough. The Fed again reiterated its mantra of “transitory inflation” debunking the theories of a meltdown and delaying a drawback from its QE program. Apparently, it appeared that the economists were adept while the conviction in their beliefs made it harder to oppose their perspective to allow a breather before the screws were tightened to stymie unwanted inflation. Even I presumed that this revival from history’s shortest recession would be etched in golden words.

Until the Delta variant hit the U.S. shores, the main concern was inflation and a stunted march towards full employment. Restaurants opened while back-to-office slogans deluged social media. Employers enticed workers through high wages as unemployment benefits expired. Mask mandates were lifted as the country braced to welcome normality. It felt like the Fed peeked into the future somehow as the roadmap towards prosperity panned out exactly as predicted. The Delta variant upended the plan entirely.

Several states have now delayed the plans to reopen schools and offices as the virus resurges. States like Texas and Florida are inundated by the caseload as hospitals are unable to care for patients infected with COVID. Many are dying in hallways. The CDC has taken a reluctant step back to recommend masks and testing for even the fully vaccinated. The worst part is the breakthrough infections that have instilled a fear that receded months ago as vaccination drives appear to be more futile than ever: despite reassurances by the officials that once claimed confidence in the tensile defense of the vaccines earlier. Dwindling federal stimulus is another resistance. As stimulus payments expire, so does the fervor shown in consumer spending over the last few months. Reports estimate that while the deteriorating supply chain networks fueled the producer prices twice beyond the forecasted levels for July, the consumer prices inflated only by 0.5% from June to July. It clearly signifies that the artificial support is fading which would eventually plunge the consumer demand in the following months, ultimately impeding the racing growth of the economy. Naturally, the demand is relapsing as worry coupled with uncertainty now reigns in the streets of the United States.

Moreover, the supply channels have regressed further as major logistic stakeholders including Vietnam, Japan, and Indonesia are similarly grappling with the unprecedented surge of the variant. How easily we touted that the supply chain struggles would resolve by the end of 2021 and how redundantly we just assumed that the worst was past.

Furthermore, even the T-note yields collapsed from March highs of 1.75% to as low as 1.13% earlier this month (Bond prices are inversely promotional to yields). National savings are plummeting fast as negative real interest rates are eating away the savings while growth is shrouded in a mist of uncertainty. Simply put, despite an inflating economy, consumers are forced to park their savings in low-paying bonds like T-notes. Some are resorting to head to stock markets to avoid puny gains in the fixed income market. The surging traffic is a possible reason for a record increase in indices like the S&P 500. In short, the superfluous growth in the equities market, a price increase in the consumer market, and nosediving yields in the bond market, by no means implies a progressive economy but a regress towards a downfall. This also implies that not only consumers, but American investors are turning cautious of a possible meltdown that was played lightly by the Fed and is only now erupting as investors seek safe bets amidst an uncertain growth prospect of both the U.S. and the global economy.

Powell’s recent address at the Jackson Hole symposium truly manifested his gripping oversight regarding the progress of the economy. While he did reiterate the notion of dialing back the asset purchase program in 2021, he masterfully held tight to Fed’s commitment to a dovish strategic overhaul last year. While many hawks were still expecting a hint of withdrawal, Powell went on a limb instead to make it abundantly clear that the Fed was “in no hurry” to drawback support.

Instead, he interestingly simplified the narrative of raging inflation by deftly pointing out the supply bottlenecks and a sluggish labor force tend to contribute more to the inflationary pressures than the Fed’s bond-buying mechanism. He professed that while inflation continues to run rampant, the transitionary nature would gradually settle. Therefore, subliminally implying that an immediate pull back could risk recovery and instigate a taper tantrum.

Nonetheless, I still believe that the Fed would be able to pull the U.S. out of the pit that is forming, I still believe that the Democrats are ingenious enough to push the stimulus pockets a little deeper, and I still believe that the U.S. markets are sturdy enough to resist another bout of a brief recession. Yet, I don’t blindly believe in a magical spell to correct the fall in a fortnight. I expect a more mature response in contrast to a popular push towards a hawkish policy. I only wonder in hindsight: What would have happened if the Fed heeded the popular opinion and tapered early? Surely it would’ve added oil to the fire of pessimism that currently grips the American economy.

Syed Zain Abbas Rizvi is a current affairs writer primarily analyzing global events and their political, economic and social consequences. He also holds a Bachelor's degree from the Institute of Business Administration (IBA) Karachi, with majors in Finance and Capital Markets.