The year 2020 saw the first recession since the great financial crisis of 2008 and the worst since the immediate post-war period, in 1945: the gross domestic product (GDP) fell by 3.5% compared to the year previous, according to the US Department of Commerce’s first estimate. This figure is better than the gloomy predictions of the start of the Covid-19 pandemic. According to the International Monetary Fund (IMF), the French economy is expected to contract by 9% in 2020 and that of Germany by 5.4%.
The United States should return to its pre-crisis level of wealth in 2021, with growth of 5.1%, according to the IMF. The economy only rebounded in the fourth quarter by 4%, due to the resurgence of the pandemic, which notably led to the destruction of 500,000 jobs in the hotel and catering industry and leisure activities and caused unemployment to rise again in December.
In total, 2020 was characterized by phases of syncope, with a decline of 31.4% of GDP in the second quarter, followed by a strong rebound of 33.4% in the third quarter. The deal was not enough to recreate the destroyed jobs: the unemployment rate, which was at a low for fifty years before the crisis (3.5%), soared to 14.8% in April and gradually fell to 6.7% in November. However, 8.9 million jobs had been destroyed at the end of December.
The Americans held on thanks to the huge aid plan decided by Congress under the Trump administration. Overall, Americans’ disposable income grew 6% in 2020, compared to just 2.2% and 3.6% in the previous two years. This financial health is explained by massive financial transfers, which rose globally from 3,125 billion dollars (2,576 billion euros) to 4,268 billion dollars (revenues remained stable at around 11,500 billion).
The Fed has done everything in its power, with zero interest rates since April 2020
These aids were largely put aside by the Americans. Their savings rate over the year more than doubled to 16.4%. This rate had reached a record of 26% in the second quarter, when federal aid arrived (unemployment benefits, tax check), and fell to 13.4% in the last quarter, when Congress failed to agree on a new stimulus plan.
The obsession of the new president, Joe Biden, and the Federal Reserve (Fed) is to avoid the mistake, made in the wake of the great financial crisis of 2008, of stopping too quickly financial support to the economy. . “We think it will be a real fight, said Fed Chairman Jerome Powell. The pandemic still poses considerable risk of relapse for the economy. “
The Fed has done everything in its power, with zero interest rates since April, and it intends to continue this policy until inflation – which reached 1.2% in 2020 – permanently exceeds 2%. Mr Powell believes there will be a rebound in prices when Americans are freed from Covid-19 and hungry for consumption, but he believes that this movement should be temporary, while inflation is below 2% for a quarter of a century.
“First finish the job”
To those worried about rising prices, Mr Powell replied: “It is premature to concentrate [sur ce sujet]. First we finish the job. ” And add: “I am more worried about not having a full recovery in the economy (…) rather than the possibility (…) high inflation. “
“I’m more worried about not having a full recovery in the economy rather than the possibility of high inflation” Jerome Powell, Chairman of the Fed
Mr. Powell also defended himself from being at the origin of the soaring financial markets, the level of which is excessive according to the IMF. The rise in stocks, he retorted, is due to anticipations of vaccines and the federal aid plan for the economy. If he believes that the role of his institution is to ensure financial stability, he thinks that the weapon of rates – raising the price of money to lower prices – is not the appropriate tool.
It is therefore to Janet Yellen, the new Secretary of the Treasury and former President of the Fed, that we must find the tools to revive. The economist specializing in labor is on the thesis that it is better to do too much than not enough. Joe Biden’s $ 1.9 billion plan is being negotiated with Congress. It is likely that its scope will be reduced in the face of Republican reluctance.
In particular, they dispute the usefulness of an additional individual tax check for $ 1,400. And even in the Democratic camp, all is not easy. Only 38 senators out of 50 have signed the bill raising the federal minimum wage from $ 7.25 to $ 15 an hour. The others support an increase, but on a more modest scale.