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The U.S. Capitol after a rain storm on Capitol Hill in Washington, December 4, 2020.
Tom Brenner | Reuters
US economic growth will pick up “quickly” and the labor market will return to full strength faster than expected thanks to the deployment of vaccines and a barrage of laws enacted in 2020, according to a government forecast released on Monday.
Gross domestic product, or GDP, is expected to peak at its previous peak in mid-2021 and the labor force is expected to return to its pre-pandemic level in 2022, the non-partisan congressional budget office said.
Importantly, the CBO said its more optimistic projections assume no new stimuli, including President Joe Biden’s $ 1.9 trillion stimulus package.
Here’s what the CBO sees for the U.S. economy:
- Real GDP will grow 3.7% in 2021
- GDP growth of 2.6% on average over the next five years
- The unemployment rate will fall to 5.3% in 2021, then to 4% between 2024 and 2025
- Inflation will rise to 2% after 2023
- Federal Reserve to Begin Raising Federal Funds Rate in Mid-2024
- Improves economic outlook until 2025
These projections are a stronger outlook than the Budget Office’s previous forecast from the summer of 2020, when the CBO said it expected the coronavirus to undermine about $ 7.9 trillion in business. economic over the next decade.
The CBO said it updated its estimates “because the slowdown was not as severe as expected and because the first stage of the recovery came earlier and was stronger than expected.” CBO staff added that businesses have proven to be more able to adapt to government-imposed restrictions, but some industries – like hospitality and food services – are still struggling.
Either way, the rapid expansion the CBO projects for the next five years is expected to moderate over the next five years amid rising prices and a more normal level of long-term consumer spending. .
Between 2026 and 2031, the CBO predicts real GDP growth of around 1.6% per year and the Fed will allow inflation to exceed its 2% target.
The office also released an analysis of the recent $ 900 billion stimulus package that Congress passed in December. The CBO estimates that the pandemic provisions of this law will add $ 774 billion to the deficit in fiscal 2021 and $ 98 billion in 2022.
These provisions will increase the level of real GDP by 1.5%, on average, in calendar years 2021 and 2022, according to CBO estimates.
The CBO’s outlook comes at a precarious time for the U.S. economy, as the coronavirus prompts many states to impose business closings and other social distancing measures to help slow the spread of the disease.
Economists say the economy suffered a brief but brutal recession in 2020, with unemployment reaching 14.8% in April and growth contracting to 31.4% in the second quarter. Covid-19 has killed more than 440,000 Americans, according to data compiled by Johns Hopkins University.
While the economy has come a long way since then, Treasury Secretary Janet Yellen and Fed Chairman Jerome Powell have warned in recent months that Congress may need to pass additional stimulus to support households and businesses. until the Covid-19 vaccine is more widely available.
According to the latest readings, the US employment rate was 6.7% in December; the Department of Labor is due to release the next look at the US employment situation on Friday.
Biden lobbied for months for yet another round of stimulus on top of the $ 2.2 trillion CARES bill passed by Congress last March and the $ 900 billion package passed in December.
Earlier this month, the new administration launched a $ 1.9 trillion plan that includes 1,400 out-of-pocket payments, a weekly federal unemployment benefit of $ 400 through September and an increase in the federal minimum wage to 15 dollars an hour.
Moderate Republicans in the Senate, along with conservative Democratic Senator Joe Manchin of West Virginia, have backed down from the hefty price tag of Biden’s plan. On Sunday, ten Republican senators presented the administration with a counter-offer of $ 600 billion.
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