WASHINGTON – The U.S. economy is recovering faster than expected from the pandemic downturn and is on track to regain all jobs lost during the coronavirus by mid-next year, in part due to huge federal spending that will push the budget deficit to $ 3 trillion for fiscal year 2021, announced the Congressional Budget Office on Thursday.
New projections, including the $ 1.9 trillion stimulus package signed by President Biden in March, give little credence to warnings from Republican lawmakers and some economists that all this spending could bring inflation to a standstill. Instead, the Household Department forecast that recent price increases for cars, airline tickets, and other products would be temporary and gradually decline this year.
Government officials downplayed the deficit projections and instead focused on predicting economic growth. They said the strong numbers confirm Mr Biden’s efforts to stimulate the economy and reiterate their view that inflation is unlikely to threaten the recovery.
The non-partisan budget office forecast inflation-adjusted economic growth of 6.7 percent for the year. That would be the fastest annual growth in the US since 1984. It is significantly faster than the Budget Bureau and the Biden government had each forecast for this year.
The unemployment rate is also expected to drop below 4 percent next year and remain historically low in the years to come, suggesting a significant acceleration in job growth compared to the office’s forecasts in February. The CBO said at the time that unemployment would not fall below 4 percent until 2026.
Budget office officials said the surge in growth and employment projections was largely due to aggressive government incentives. But the economy is also benefiting from consumers who are quick to spend the savings they built up during the pandemic. Budgets have been propped up by several rounds of the economy, including direct controls passed under President Donald J. Trump, and a faster-than-expected return to normal in the economy with the spread of vaccinations.
Mr. Biden’s employees claimed many of these developments for themselves. They said the president’s urge to speed up the production and distribution of vaccines has fueled the reopening of the economy. David Kamin, an associate director of the White House’s National Economic Council, said in an interview that Mr Biden’s stimulus package, the American Rescue Plan, was designed to bring about a faster return to low unemployment and that the budget bureau’s projections were evidence succeeded.
“This report really goes into the theory of why we had a rescue plan,” he said.
Government officials also announced updated International Monetary Fund projections, released Thursday afternoon, that predicted inflation-adjusted US economic growth of 7 percent in 2021. For the USA, the IMF forecast annual growth of 4.6 percent in April.
Mr Biden’s stimulus plan will bring the federal budget deficit near record highs for the fiscal year, the Budget Office predicted, but it will eventually leave the country in slightly better fiscal shape.
The spending approved by Mr. Biden is expected to add $ 1.1 trillion to the deficit for the fiscal year ended September. The total deficit of $ 3 trillion would be the second largest since 1945 after fiscal 2020, in nominal terms and as a percentage of the economy.
But the increased growth that accompanies the larger deficit this year will slightly improve the country’s budget outlook over the next decade, with the headline deficit decreasing by about 1 percent, the Budget Bureau said.
“The projected revenues for the next decade are now higher due to the stronger economy and the resulting higher taxable income,” the report said.
Mr Biden’s bailout plan included direct payments of $ 1,400 each to low- and middle-income Americans, $ 350 billion to help states and communities fix expected budget deficits, and hundreds of billions of dollars to provide vaccines and accelerate more widespread coronavirus testing. It also expanded federal payments of $ 300 a week to unemployed workers through September, a feat that Republican governors across the country ended prematurely as business owners complain of difficulty finding work.
The Household Department cited these benefits as “labor depletion,” along with workers’ health concerns. It said the phasing out of benefits, along with fewer worries about contracting the virus, would help boost job growth in the second half of this year.
Inflation, which has been a big issue in Washington, is expected to ease in the coming months. The office predicts inflation to rise above recent trends to hit 2.6 percent for the year, which is stronger growth than the February forecast, but officials see that price pressures ease in the second half of the year as a large number of supply restrictions in areas such as wood and automobiles.
For 2022, the forecasters expect strong economic growth of 5 percent in real terms. However, you can see that it declines rapidly in the following years as the workforce grows more slowly than usual. Budget office officials said this partly reflected the impact of Trump’s more restrictive immigration policies. By 2023, the office predicts, growth will slow to 1.1 percent.
This forecast does not take into account any additional economic policy measures that Mr Biden may take in the meantime. He is currently urging Congress to approve up to $ 4 trillion in spending and tax cuts to create jobs and fuel growth by improving worker productivity and the wider economy, such as repairing bridges and childcare costs Subsidized to help more parents, especially women, work extra hours.
Fiscal hawks said the report’s long-term deficit projections underscored the need for additional economic investments to be paid for in full, rather than federal loans. National debt will rise to nearly $ 36 trillion by 2031, the budget office now predicts. That would be a little bigger – a little over 6 percent – than the size of the entire American economy this year.
“While it made sense to borrow to weather the pandemic and hasten the recovery,” said Maya MacGuineas, president of the Washington Federal Committee on Responsible Budget, “CBO’s strong economic growth forecasts indicate that the time has come to turn away from further deficit financing and towards paying for things and finally reducing the national debt from their current path. “