US Capitol building after a storm at the Capitol in Washington, December 4, 2020.
Tom Brenner | Reuters
US economic growth will recover “quickly” and the labor market will return to full strength faster than expected, thanks to the vaccine launch and a flood of legislation enacted in 2020, according to a government forecast published in the Monday.
Gross domestic product, or GDP, is expected to reach its previous peak in mid-2021 and the workforce is expected to return to its pre-pandemic level in 2022, said the non-partisan Congressional Budget Office.
It is important to note that the CBO said that its most optimistic projections do not presuppose any new stimulus, including President Joe Biden’s $ 1.9 trillion stimulus plan.
Here’s what the CBO sees for the U.S. economy:
- Real GDP is expected to grow 3.7% in 2021
- GDP growth on average 2.6% over the next five years
- The unemployment rate is expected to drop to 5.3% in 2021, and even further to 4% between 2024 and 2025
- Inflation is expected to rise to 2% after 2023
- The Federal Reserve is expected to start raising the federal funds rate in mid-2024
- Updates economic outlook until 2025
These projections are a stronger prospect than the budget office’s previous forecast for summer 2020, when the CBO said it expected the coronavirus to undermine about $ 7.9 trillion of economic activity in 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 occurred earlier and was stronger than expected.” The CBO team added that companies were better able to adapt to restrictions imposed by the government, but that certain sectors – such as hospitality and food services – are still struggling.
Despite this, the rapid expansion that CBO projects for the next five years is expected to be moderate over the next five years, amid rising prices and a more normal level of consumer spending in the long run.
Between 2026 and 2031, the CBO predicts real GDP growth of around 1.6% per year and the Fed allows inflation to exceed its 2% target.
The office also published some analyzes of the recent $ 900 billion stimulus package that Congress passed in December. The CBO estimates that the pandemic-related provisions in this legislation will add $ 774 billion to the deficit in fiscal year 2021 and $ 98 billion in 2022.
These provisions will increase the level of real GDP by 1.5%, on average, in the calendar years 2021 and 2022, CBO estimates.
The prospect of CBO comes at a precarious time for the US economy, as the coronavirus leads many states to impose business closures and other measures of social distance to help slow the spread of the disease.
Economists say the economy suffered a brief but sharp recession in 2020, with the unemployment rate skyrocketing to 14.8% in April and growth contracting 31.4% in the second quarter. Covid-19 killed more than 440,000 Americans, according to data compiled by Johns Hopkins University.
Although the economy has evolved a lot since then, Treasury Secretary Janet Yellen and Fed President Jerome Powell have warned in recent months that Congress may need to approve additional stimuli to support families and businesses until the Covid vaccine -19 is more widely available.
According to the most recent reading, the US employment rate was 6.7% in December; the Department of Labor is scheduled to publish the next analysis of the US employment situation on Friday.
Biden has been lobbying for months for another round of stimulus, in addition to the $ 2.2 trillion CARES Act that Congress passed last March and the $ 900 billion package approved in December.
Earlier this month, the new government launched a $ 1.9 trillion plan that includes $ 1,400 direct payments, a $ 400 federal unemployment benefit per week through September, and an increase in the federal minimum wage to $ 15 per hour.
Moderate Republicans in the Senate, as well as West Virginia’s conservative Democratic senator Joe Manchin, rejected the high price of Biden’s plan. Ten Republican senators on Sunday floated a $ 600 billion counter offer to the government.