According to statistics from the US Department of Commerce, the US Personal Consumption Expenditure (PCE) price index rose 3.6% year-on-year in April, exceeding the expected value of 3.5% and substantially exceeding the previous value of 2.3%. This is the fastest growth rate of the inflation indicator since 2008, and it is well above the Fed’s official inflation target of 2%.
Recently, US Treasury Secretary Yellen said that fiscal expenditures should be increased, and she is not worried about serious inflation in the US economy. She believes that the inflation target of the US economy in 2021 will exceed the Fed's inflation target, but the inflation rate will fall in 2022.
Echoing Yellen, US President Biden introduced a $6 trillion budget for the next fiscal year, which significantly increased spending on public facilities, public health, education and other social welfare. Although President Biden proposed to increase taxes on companies and the wealthy to make up for the fiscal deficit, it is clear that the source of substantial funds that can be obtained in the short term is the Fed's increase in US dollar liquidity. Therefore, the proliferation of US dollars will continue for a long period of time in the future.
Another good news for the U.S. economy is that the number of initial claims for unemployment insurance in the U.S. has dropped for four consecutive weeks. This reflects the continuous improvement in the U.S. job market and boosts people’s confidence in the recovery of the U.S. economy.
The gradual stabilization of the new crown pneumonia epidemic, the continuous improvement of the job market, the implementation of the trillion-dollar rescue plan, the substantial increase in the fiscal budget, etc., the above-mentioned factors will inevitably lead to the acceleration of the U.S. economic recovery, and will also lead to the continued inflation of the U.S. economy rise. Fearing that prematurely adopting QE reduction measures will lead to the death of economic recovery, the Fed dare not act rashly in the short term. As a result, the inflation rate will significantly exceed the 2% management target.