It’s not quite official, but for all practical purposes the Great COVID-19 Recession of 2020 is now behind us. The 1st quarter 2021 GDP is significantly larger than the GDP that existed before the recession began. This development indicates the lending environment in 2021-2022 will be much more favorable than 2020. The demand for credit will be much higher and worries about loan quality should diminish. However, lenders need to be aware of other issues that will linger in 2021-22.
While the GDP has recovered from pre-recession levels, the job losses caused by the pandemic are not even close to the level that existed before the pandemic. The unemployment rate is still way above the previous low, and in all likelihood, the Fed will maintain ultra low interest rates until the employment situation returns to normal.
A second issue facing lenders, one that may be more serious than the unemployment issue, is the apparent return of inflation. Inflation has become the major economic worry of 2021. Producer prices are rising at rates that have not been seen for decades, and consumer prices are spiking. Dr Ed will try to sort out if the current return of inflation is temporary or a major issue that the Fed will have to address.