The US economy will return to its pre-pandemic size in the middle of this year. Even if Congress doesn’t pass more federal recovery aid, but it will be years before all those laid off by the pandemic can go back to work, the Congressional Budget Office projected on Monday.
The new projections from the bureau, which is nonpartisan and issues regular budget and economic forecasts, are an improvement over the bureau’s projections last summer. Officials told reporters Monday that the improved outlook is due to large sectors of the economy are adapting better and faster to the pandemic than originally expected. They also reflect higher growth thanks to a $ 900 billion financial aid package that Congress approved in December.
The budget office now expects the unemployment rate to drop to 5.3% by the end of the year, compared to 8.4% expected in July. The economy is expected to grow 3.7 percent for the year, after registering a much smaller contraction in 2020 than the budget office initially expected.
The main Wall Street indices have grown, even in the middle of the pandemic.
The report is likely to inject even more debate into discussions about the approval of President Biden’s $ 1.9 trillion economic rescue package. It could embolden Republicans who have lobbied Biden to significantly reduce the plan, saying the economy doesn’t need as much additional federal support.
Even so, the report shows little risk of “overheating” the economy, which, according to forecasts, will remain below potential levels until 2025 on its current trajectory. And there are still great economic risks. The number of Americans in employment will not return to its pre-pandemic levels until 2024, officials predicted, reflecting the prolonged difficulties in shaking off the virus and returning to full levels of economic activity. Officials said the recovery in growth and employment could be accelerated significantly if public health authorities were able to more quickly deploy coronavirus vaccines to the population.
At present, the budget office sees little indication that growth will be strong enough in the coming years to spur a rapid rise in inflation. He expects inflation levels below the Federal Reserve’s 2% target for the next few years, even with the Fed keeping interest rates close to zero.
Other independent forecasts, including one from the Brookings Institution last week, have projected that another dose of economic aid – like the $ 1.9 trillion package Mr. Biden has proposed – would help the economy grow faster. , surpassing its pre-pandemic trajectory at the end of the year.
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