The economic expansion that began in mid-2020 should continue, according to the new economic forecast from the Congressional Budget Office, which covers the period from 2021 to 2031.
In the forecast, the CBO projects real (inflation-adjusted) gross domestic product (GDP) to return to its pre-pandemic level in mid-2021 and to surpass its potential (its maximum sustainable) level in early 2025. Over those five years, the CBO expects annual GDP growth to average 2.6%, exceeding the 1.9% growth rate of real potential GDP.
The CBO projects the unemployment rate to gradually decline through 2026 and the number of people employed to return to its pre-pandemic level in 2024. It expects the people to continue returning to the workforce, which should hit its pre-pandemic size in 2022.
As the Federal Reserve maintains low-interest rates and continues to purchase long-term securities, inflation should rise gradually over the next few years and move above 2.0% after 2023.
Interest rates on federal funding should rise, according to the CBO. It projects the Federal Reserve will keep the federal funds rate at near-zero through mid-2024. Then it will start to raise that rate gradually.
CBO's forecast is one of many for the coming years.
John Leer, writing for Morning Consult, says the economy will experience four distinct phases this year. From January to April, the second coronavirus relief package's initial spending will create a stimulus high as unemployment insurance and stimulus checks offset the virus's negative economic consequences.
By late April, Leer expects the effects of the second coronavirus relief bill to wane as unemployment benefits expire and the stimulus boost burns off, exposing weaknesses in households' finances.
Once the vaccine is widely distributed by the end of Q2, Leer anticipates a bounce back as a wave of spending as Americans eat out and travel. That should drive a rebound through most of the remainder of the year. Restaurants and gyms are likely to see a resumption of activity before international travel increases later in the year.
By December, the economy should enter a period of normalization. Leer thinks that if large unemployed workers can't find work, then the pandemic's economic scars will likely limit economic activity heading into 2022.
Yet another group, the American Bankers Association's Economic Advisory Committee, expects an acceleration later in the year after a slow first quarter.
The committee predicts that the US economy will grow at about 4% over the four quarters of 2021, which will be the most robust growth in nearly two decades.
While economic growth should accelerate, the labor market will recover more slowly, according to the advisory committee. Right now, overall employment remains nearly 10 million short of pre-COVID levels. Committee members forecast close to 5 million additional jobs this year, but a return to full employment remains two or three years away. Overall, the advisory committee expects the unemployment rate to decline to 5.4% by the end of 2021.
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