The American economy will be back to pre-pandemic size by the middle of this year, even if Congress doesn’t approve further government aid for the recovery. However, it will be years before everyone kicked from work by the pandemic can return to work, the Congressional Budget Office projected on Monday.
The new projections from the office, which is impartial and publishes regular budget and economic forecasts, are an improvement on the forecasts made by the office last summer. Officials told reporters Monday that the brightening outlook was due to large sectors of the economy adapting to the pandemic better and faster than originally expected.
They also reflect the increased growth of a $ 900 billion economic aid package passed by Congress in December that included $ 600 direct checks on individuals and more generous unemployment benefits.
The budget office now assumes that the unemployment rate will fall to 5.3 percent by the end of the year, after a forecast of 8.4 percent in July last year. Economic growth of 3.7 percent is expected for the year after a much smaller decline in 2020 than originally expected by the budget office.
The rosier projections are likely to feed even more debate into discussions about whether to pass President Biden’s $ 1.9 trillion economic bailout. It might encourage Republicans who pushed Mr Biden to cut the plan significantly as the economy doesn’t need as much additional federal support and another big package could “overheat” the economy.
However, the report shows little risk of this. The economy is expected to remain below potential levels on its current path through 2025. And great economic risks remain. The number of employed Americans will not return to pre-pandemic levels until 2024, officials predicted. This reflects the ongoing difficulty in shaking off the virus and returning to full levels of economic activity.
Federal Reserve chairman Jerome H. Powell warned last week that the economy was “far from a full recovery” with millions still unemployed and many small businesses under pressure.
Budget officials said the recovery in growth and jobs could be accelerated significantly if public health officials were able to deploy coronavirus vaccines across the population more quickly.
Right now, the Budget Bureau sees little evidence that growth will be hot enough in the years ahead to spur a rapid spike in inflation. It projected inflation levels below the Federal Reserve’s target of 2 percent for the coming years, even if the Fed keeps interest rates close to zero.
Other independent projections, including one from the Brookings Institution last week, have predicted that another dose of economic aid – like the $ 1.9 trillion package proposed by Mr Biden – would help the economy grow faster and ahead of the pandemic by the end of the year.