Quarterly Economic Report, Q2 2021
Key takeaways
01
Growth and inflation expectations are increasing as economies recover
Unprecedented fiscal stimulus and ongoing vaccine distribution will continue to boost growth.
02
The Fed has taken an outcome driven approach
The Fed will wait for data to indicate the recovery is solid before raising the fed funds rate.
03
There has been a yield divergence
Front-end yields are anchored low while belly of the curve and beyond has steepened.
GDP: Rebound continues
The economic recovery continues, with GDP in Q4 2020 increasing 4.3%, up from a prior estimate of 4.1%.
Historical Interest Rates
Fiscal spending helped the Fed revise its inflation and growth forecasts higher for 2021 but no change to policy rate expected until 2023.
Global Central Bank Expectations
The market expects liftoff for the fed funds rate in the US to be early 2023; other central banks may remain accommodative through 2025.
US Dollar Outlook
The COVID-19 unwind favors a weaker US dollar (USD). However, there may be a long way to go.
Yield Curve Divergence
Long-end yields have risen in 2021 on higher growth expectations. Front-end yields have declined due to supply and demand imbalances.
Written and researched by SVB experts
