US economy recovering from pandemic much faster than expected
Economic outlook forecasts 1.7% growth in GDP for 2020-2024
The stronger forecast could bolster Republican objections to President Joe Biden’s massive stimulus proposal. Photograph: Nicholas Kamm/AFP
The US congressional budget office (CBO) said it sees the US economy recovering from the coronavirus pandemic much more quickly than previously expected – an upgrade that potentially complicates prospects for President Joe Biden’s $1.9 trillion (€1.41 trillion) relief plan.
The CBO, a nonpartisan arm of the legislature, forecasts gross domestic product will increase 1.7 per cent annually from 2020-2024, according to its economic outlook released on Monday. That’s a 0.7 percentage point increase from the previous expectation released in July, months before Covid-19 vaccines were shown to be effective and approved for use, which put the pandemic’s potential end more clearly in sight.
The stronger forecast could bolster Republican objections to Mr Biden’s massive stimulus proposal, which seeks to improve vaccine distribution and deliver funds to households suffering during the coronavirus-spurred recession. The president is set to meet later on Monday at the White House with 10 Republican senators about their $618 billion counter-offer, while House Democrats are planning to start preparing the legislative ground for a stimulus Bill that forgoes Republican support.
The CBO said its upgrade came “in large part because the downturn was not as severe as expected and because the first stage of the recovery took place sooner and was stronger than expected”, according to the CBO report. In addition, stimulus approved in December “played a part in improving the economic outlook”.
Even with the sunnier outlook, recent economic data has pointed to an unequal recovery and the potential for more near-term pain as the labour market stumbles.
Democrats could also cite a downgrade in the longer-term CBO forecast as evidence that the economy still needs significant help. The agency sees 1.7 per cent annual growth in the 2025-2030 period, down from 2.1 per cent forecast in the July report.
The Federal Reserve’s preferred measure of inflation will pick up “gradually over the next few years and rises above 2.0 per cent after 2023” as the central bank keeps interest rates low and continues to buy long-term securities, the CBO said. The agency doesn’t expect any big price spike, with the gauge averaging 2.1 per cent from 2024 to 2031.
The Fed has signalled it won’t tighten monetary policy until it has clear signs of inflation heading toward this target.
The CBO estimate incorporates the most recent $900 billion stimulus package but not Mr Biden’s $1.9 trillion proposal. The Washington-based agency said the projections “are subject to an unusually high degree of uncertainty” stemming from “the course of the pandemic, the effectiveness of monetary and fiscal policies, and the response of global financial markets to substantial increases in public deficits and debt”.
The CBO also forecasts that the yield on the 10-year Treasury note will average 1.1 per cent this year and 1.3 per cent in 2022, slightly above the previous projections. It expects a rate averaging 2.8 per cent from 2025 to 2030, which means the cost of government borrowing would rise sharply in the coming years, against the falling trend of recent decades. – Bloomberg