The IMF lifts its global growth forecast with vaccination and stimulus likely to be a shot in the arm

Kristalina Georgieva
IMF Managing Director Kristalina Georgieva speaks at a press conference in Washington D.C., the United States, on March 4, 2020.

  • The IMF will lift its forecast for global economic growth in a report set for release next week.
  • Vaccination and new US stimulus were grounds for the upgrade, the IMF’s managing director said.
  • Still, developing economies are recovering far slower than advanced countries, she added.
  • See more stories on Insider’s business page.

The International Monetary Fund will lift its projections for global economic growth in the wake of encouraging vaccination trends and major new stimulus in the US, Managing Director Kristalina Georgieva said Tuesday.

The IMF will roll out an upgraded set of forecasts for this year and for 2022 next week when it publishes its World Economic Outlook report, she said. The organization’s January estimates saw global output growing 5.5% in 2021 after a forecasted tumble of 3.5% the previous year. The months since have seen COVID-19 cases fall from their peaks, vaccine rollouts begin, and $1.9 trillion in new fiscal support from the Biden administration.

The developments all stand to boost global economic recoveries through the summer, Georgieva said in prepared remarks.

“This allows for an upward revision to our global forecast for this year and for 2022,” she said.

Without “extraordinary effort” from essential workers and scientists, the global recession seen through most of 2020 would have been “at least three times worse,” the managing director added.

The news isn’t all good. Georgieva highlighted that, despite the broadly improved outlook, the global recovery remains uneven and gaps between countries could widen in the coming months. The US and China are likely to reach pre-pandemic levels of gross domestic product by the end of the year, but “they are the exception, not the rule,” she said.

New virus strains in Europe and Latin America are fueling high uncertainty about the region’s prospects. Emerging and developing countries also endured a 20% drop in per-capita income, roughly twice that seen in advanced economies. The plunge leaves emerging countries with a much harder climb back to pre-crisis health.

“They already have more limited fiscal firepower to fight the crisis. And many are highly exposed to hard-hit sectors, such as tourism,” Georgieva said

One upgrade among many

The IMF joins a handful of other institutions turning more bullish toward the US and global rebounds. Fitch lifted its own forecast for global expansion on March 18 to 6.1% from 5.3%, similarly citing stimulus and progress toward reopening. The estimate implies the strongest year of global growth since at least 1980.

US growth will outperform slightly at 6.2%, Fitch said. That’s up from the previous estimate of 4.5%.

“It still looks reasonable to assume that the health crisis will ease by midyear, allowing social contact to start to recover. But immunization delays or problems remain the key risk,” the firm said.

Wall Street giants have also boosted their estimates in recent weeks. Morgan Stanley is among the most bullish, lifting its US growth estimate to 8.1% in 2021 from 7.6% in an early March note. The forecast also calls for US GDP to reach pre-pandemic levels by the end of the first quarter.

Bank of America raised its 2021 US growth estimate to 7% from 6.5% on Thursday, marking its fourth upgrade this year alone. The revision was entirely linked to Democrats’ new stimulus measure and the “exceptional consumer spending” seen among those receiving relief checks, the team led by Michelle Meyer wrote.

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US economic growth will hit 7% this year on major stimulus boost, BofA says in latest upgrade

People Shopping covid NYC
People shopping at the Union Square Greenmarket as New York City continues reopening efforts on December 4, 2020.

  • BofA lifted its 2021 US GDP forecast to 7% from 6.5%, the latest in several upgrades by the bank.
  • The firm sees strong spending already and unemployment falling to 4.5% later this year.
  • The White House’s plan for up to $3 trillion in new spending can further lift growth, the bank said.
  • See more stories on Insider’s business page.

The American reopening is already leading to stronger growth than banks expected. Just ask Bank of America.

On Thursday, BofA economists lifted their 2021 US growth forecast once again on hopes for past and future stimulus accelerating the economic recovery. The upgrade is at least the fourth the bank has made this year.

The team led by Michelle Meyer now expects gross domestic product to grow 7% this year, up from the previous estimate of 6.5%. Output will then reach 5.5% the following year, also an upgrade.

Growth on a fourth-quarter-by-fourth-quarter basis will total 7.7% in 2021 and 4.4% in 2022, the team added. That exceeds the Federal Reserve’s median estimates of 6.2% and 3.4% growth in 2021 and 2022, respectively.

The upward revision is entirely linked to stimulus. The $1.9 trillion measure passed by Democrats earlier this month is already fueling “exceptional consumer spending” according to credit- and debit-card spending data tracked by the bank. Distribution of $1,400 direct payments contributed to a 40% month-over-month spending leap among recipients. The boost might only just be getting started, the economists said in a note to clients.

Total card spending was up a whopping 45% from a year ago and 23% from two years ago for the seven days ending March 20, per BofA data.

“We think consumer spending is about to take off given the one-two punch of stimulus and reopening,” they added.

Hopes for a follow-up spending package added to the bank’s rosier forecast. The White House is organizing a proposal for up to $3 trillion in spending on infrastructure, climate, and education projects to further aid the country’s rebound. Such a plan would drive a more moderate boost to growth over a longer period of time, the bank said.

Tax hikes used to pay for a follow-up spending package could offset some gains, the team added.

Stronger 2021 growth should open the door for a swifter labor market recovery, according to the bank. The team expects a series of encouraging jobs reports starting with the March release scheduled for April 2. Payroll growth is projected to average 950,000 per month in the second quarter and pull the unemployment rate to 4.7% from 6.1%.

The rate will fall more modestly through the rest of the year to 4.5%, the team said. That matches the Fed’s own year-end estimate.

Bank of America’s bullish update follows similarly optimistic forecasts from Wall Street peers. Recent weeks have seen Morgan Stanley, UBS, and Goldman Sachs all lift their own estimates for 2021 GDP growth.

Morgan Stanley remains the most bullish of the bunch, estimating the economy will expand 8.1% this year and return to pre-pandemic output levels by the end of the first quarter. All three banks, along with Bank of America, hold decidedly more hopeful outlooks than the Fed due to expectations for another large-scale spending measure.

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Fed lifts estimates for US economic growth and employment as vaccination speeds up

Federal Reserve
  • The Fed boosted its estimates for economic growth in its projections since December.
  • US GDP is forecasted to grow 6.5% this year, up from the prior estimate of 4.2%.
  • The Fed also sees the unemployment rate sinking to 4.5% by the end of 2021.
  • See more stories on Insider’s business page.

Federal Reserve policymakers boosted their projections for the US economic recovery on Wednesday as new stimulus and vaccine rollouts pave the way for a summer reopening.

The Federal Open Market Committee’s median estimate for 2021 gross domestic product growth rose to 6.5% this year, and 3.3% for 2022. That compares to the previous forecasts of 4.2% and 3.2%, respectively. The unemployment rate is now expected to dip to 4.5% this year, an improvement from the prior forecast of 5%.

The FOMC released its quarterly summary of economic projections following the second day of its March meetings. The central bank elected to hold interest rates at historic lows and maintain its pace of asset purchases at $80 billion in Treasurys and $40 billion in mortgage-backed securities per month.

The estimates are the first to be published since December, and therefore are the first to include the impact the $900 billion stimulus package passed late last year, the $1.9 trillion plan signed earlier this month, and the improved pace of vaccination. The developments have all been viewed as major boons to the economic rebound and prompted several economists to lift their own growth forecasts.

The nation’s fight against the coronavirus has also shifted significantly since the December FOMC meeting. Daily case counts surged to a peak above 300,000 in early January but have since tumbled to around 50,000 as distancing measures and vaccination curbs the pandemic’s spread.

New stimulus has been criticized by Republicans for risking runaway inflation through the recovery. Fed officials have countered such concerns in recent weeks. Jerome Powell has repeatedly said that, although reopening and stimulus can produce a quick jump in inflation, the effect will likely be temporary and give way to a similarly sharp decline.

The FOMC’s latest estimates reflect such an outlook. Members see personal consumption expenditures inflation – the Fed’s preferred price-growth gauge – reaching 2.4% in 2021, up from the previous 1.8% estimate. Inflation will then fall to 2% in 2022 and reach 2.1% the following year.

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Biden’s stimulus will lift US growth to 8% this year, Goldman Sachs says – without factoring in another $2 trillion spending package

Biden signs American Rescue Plan
US President Joe Biden signs the American Rescue Plan on March 11, 2021, in the Oval Office of the White House in Washington, DC.

  • Goldman Sachs lifted its 2021 US growth forecast to 8% from 7.7%, citing new stimulus for the boost.
  • The bank also expects Biden and Democrats to pass at least $2 trillion in infrastructure spending.
  • That sum could hit $4 trillion if the deal includes education, child-care, and health-care spending.
  • See more stories on Insider’s business page.

Goldman Sachs joined its Wall Street peers in revising its US economic outlook on Saturday, pegging an increasingly bullish forecast to Democrats’ latest stimulus package.

The team led by Jan Hatzius now expects US gross domestic product to grow 8% in 2021 on a fourth-quarter-to-fourth-quarter basis, according to a note published Saturday. That’s up from the previous estimate of 7.7%. The bank’s full-year growth estimate climbed to 7% from 6.9%.

The current-year projection largely hinges on President Joe Biden’s stimulus plan, as Goldman had initially expected a $1.5 trillion deal to reach Biden’s desk. The $1.9 trillion plan signed by the president on Thursday will accelerate the nation’s economic recovery through the middle of 2021 before tapering off into 2022, the bank’s economists said. Stimulus checks’ rollout over the coming months will concentrate the plan’s positive impact in the second quarter, they added.

Democrats’ stimulus package is probably the last major pandemic-era relief deal, but key tenets of the plan are set to be renewed as the economy climbs out of its virus-induced hole. The bill’s expansion of the child tax credit will probably be extended or made permanent by Democrats, according to Goldman.

The $300 supplement to federal unemployment benefits will expire as planned in September, but expanded eligibility and benefit duration policies included in Biden’s package could be prolonged, the team said.

Next stop: Infrastructure

Biden has said he aims to pass a massive infrastructure measure to further juice the US recovery. Such a plan will come with a price tag of at least $2 trillion, though details are scarce for now, Goldman said.Inclusion of funding for child care, health care, or education could push the sum to $4 trillion, though tax hikes would probably be needed to fund such a package, the bank added.

Biden campaigned on a $2 trillion package, though some Democratic senators indicate they favor even larger spending. Sen. Joe Manchin of West Virginia, an influential moderate member of the caucus, has said he could support up to $4 trillion, while Sen. Dick Durbin of Illinois, a member of party leadership, has said he could support $3 trillion.

Infrastructure spending would have a less pronounced impact on growth, but Goldman still sees the package driving a stronger expansion through 2022. The economy will expand 2.9% next year on a Q4-Q4 basis, up from the bank’s prior forecast of 2.4%.

House Democrats began planning their infrastructure push on Friday. House Speaker Nancy Pelosi said she hopes to hold bipartisan talks on improvements to broadband, energy, and education, among other sectors. Yet after passing the stimulus bill without a single Republican vote, garnering support across the aisle could be difficult.

Goldman’s update follows similarly optimistic changes elsewhere on Wall Street. Morgan Stanley lifted its forecast on Tuesday to 8.1% on a Q4-Q4 basis. US GDP will fully rebound to pre-pandemic highs by the end of the first quarter and trend higher in the coming months as the economy fully reopens, the team led by Ellen Zentner said.

Separately, UBS projected growth would reach 7.9% from Q4 2002 to Q4 2021 as stimulus, falling COVID-19 case counts, and continued vaccination opened the door for a strong recovery. The bank, like Goldman, had expected Republicans to water down the size of the latest relief package. Passage of the full bill can help consumer spending lift the ailing services industry into 2022, economists led by Seth Carpenter said in a note to clients.

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The US economy will grow 7.9% in 2021 as stimulus juices consumer spending, UBS says

US Capitol
The US Capitol building exterior is seen at sunset on March 8, 2021 in Washington, DC.

  • UBS economists lifted their 2021 Q4-Q4 growth estimate to 7.9%, citing Biden’s huge stimulus plan.
  • Another relief package will extend strong growth through 2022, the team added.
  • Inflation will surge through reopening but quickly calm as the economy normalizes, the bank said.
  • Visit the Business section of Insider for more stories.

Another massive tranche of fiscal stimulus is on the brink of passage, and UBS sees the measure fueling strong growth well into next year.

Economists led by Seth Carpenter expect US gross domestic product to grow 7.9% from the fourth quarter of 2020 to the fourth quarter of 2021. Growth on a calendar-year basis will total 6.6%, a larger-than-usual difference due to depressed first-quarter gains.

The economy will continue to expand at a robust pace in 2022 as a new fiscal support measure further boosts the recovery, the team projected.

The bank’s previous baseline scenario assumed Republican opposition would force President Joe Biden to shrink his $1.9 trillion stimulus plan, but that hasn’t taken place. With House Democrats poised to approve the measure in a final vote on Wednesday, the bill is set to lift the last pockets of the economy still struggling through lockdowns.

“The manufacturing sector is robust. The housing sector is surging. The part of the economy that is lagging is consumer spending on services,” the team said in a Tuesday note. Their updated forecast sees spending more evenly spread between goods and services.

Nearly all signs point to a healthy recovery in the coming months. The average rate of vaccination has stabilized above 2 million shots per day, according to Bloomberg data. At the same time, daily case counts are down significantly from their January peak and hospitalizations have similarly plummeted.

The pace of the rebound has raised questions as to whether Biden’s massive relief plan is necessary. Where Democrats claim the hole in the economy is large enough to warrant nearly $2 trillion in fresh aid, critics argue the proposal will overheat the economy and send inflation soaring.

UBS sees little risk of a lengthy inflation overshoot. April and May will likely see price growth sharply accelerate, but that rally will quickly give way to moderately higher inflation in line with the Federal Reserve’s target. The roughly 10 million jobs still lost to the pandemic are proof that there’s room for stronger-than-usual inflation, the bank said.

“We see sustained growth, well in excess of the long-run sustainable pace, but we also see a substantial amount of labor market slack,” the team added.

The outlook matches that outlined in recent weeks by Fed Chair Jerome Powell. The central bank expects reopening to lift prices at a fairly quick rate, but the decades-long trend of relatively weak inflation won’t “change on a dime,” Powell said in a late-February House hearing.

The Fed’s preferred inflation gauge will only trend at its 2% target by the end of 2023, UBS said. Rate hikes likely won’t arrive until 2024, though tapering of the central bank’s asset purchases could arrive as soon as October if the recovery surprises to the upside, the economists added.

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US GDP will return to pre-pandemic highs by the end of March, Morgan Stanley says

Mall coronavirus retail
  • The US economy will grow 8.1% in 2021 as the coronavirus threat fades for good, Morgan Stanley said.
  • GDP will return to pre-pandemic levels by the end of the first quarter, the bank’s economists added.
  • Unemployment will fall to 4.9% in 2021, the bank said, still above the rate from before the crisis.
  • Visit the Business section of Insider for more stories.

Morgan Stanley has lifted its forecasts for 2021 economic growth in the US, citing a collection of encouraging trends for its brighter outlook.

Gross domestic product is now expected to grow by 8.1% on a fourth-quarter by fourth-quarter basis, up from 7.6%, the team led by Ellen Zentner said in a Tuesday note. Growth for 2022 was revised 0.1 points lower to 2.8%.

The bank also expects US GDP to fully rebound to its pre-pandemic level by the end of the current quarter. The output gap – a measure of how actual growth compares to maximum potential growth estimates – is expected to turn positive and reach 2.7% by the end of the year as the economy roars out of its virus-induced downturn. That would be the highest reading since the 1970s, according to the Bureau of Economic Analysis.

Economic reopening, a faster rate of vaccination, and stronger job growth all contributed to the adjustments, the economists said. New stimulus likely to win final approval in the House on Wednesday is in line with what the bank expected, but its earlier timing and the pace of first-quarter growth also added to optimism, the team added.

Morgan Stanley sees the unemployment rate tumbling further, though taking longer to reach lows seen before the pandemic. The gauge is projected to average 4.9% by the fourth quarter of 2021, down from the previous 5.1% estimate. Unemployment will sink further to 3.9% over the following year, the team said.

“A more robust return to work will be somewhat offset by rising labor force participation, but economic activity is strong enough to still generate a sharp decline in the unemployment rate,” the bank added.

The faster recovery will come at a cost, and Morgan Stanley’s latest inflation projections signal price growth will firm up later this year. Higher prices for rent, healthcare, and staples will lift inflation to 2.6% in April and May before it eases to 2.3% at the end of the year, according to the economists. Inflation will hold at the elevated level well into 2022, meeting the Federal Reserve’s above-2% target.

Still, significant tightening of monetary conditions isn’t likely to take place until 2023, the bank said. Policymakers will likely reiterate their dovish guidance when they meet next week and project near-zero rates staying at least through 2022. Yet the recovery and related effects on inflation and hiring will lead the Fed to begin shrinking its asset purchases in January 2022, Morgan Stanley said.

“By the middle of the year we expect the cloud of COVID will have thinned and the recovery will have picked up meaningfully enough that the Fed will see it as appropriate to begin taking its foot off the gas pedal,” they added.

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The coronavirus recession is almost over, Wall Street strategists say

Wall Street Coronavirus
New York Stock Exchange.

  • Wall Street strategists are increasingly optimistic that the pandemic is in its final phase.
  • JPMorgan said in February the crisis will “effectively end” in 40 to 70 days.
  • The “recession is effectively over,” Morgan Stanley said Sunday.
  • Visit the Business section of Insider for more stories.

One year after the S&P 500 tumbled nearly 8% on COVID-19 fears, experts on Wall Street see the US bearing down on the finish line of the pandemic.

Declining case counts, vaccine rollouts, and expectations for new stimulus have lifted spirits in recent weeks. Economists have upgraded growth forecasts and investors continue to shift cash from defensive investments to riskier assets more likely to outperform during a rebound. Major banks’ strategists are taking it one step further.

The rapidly improving backdrop and “spectacular” profit growth in the fourth quarter signal “the recession is effectively over,” Michael Wilson, chief investment officer at Morgan Stanley, said Sunday.

“At the current pace of vaccinations and with spring weather right around the corner, several health experts are talking about herd immunity by April,” he said in a note. “It’s hard not to imagine an economy that’s on fire later this year.”

JPMorgan made a similarly bullish claim late last month, telling clients it doesn’t expect new COVID-19 strains to dent its positive outlook. The spread of new variants is still overshadowed by the broader decline in cases, the team led by Marko Kolanovic, chief global markets strategist at JPMorgan, said.

The rate of vaccination implies the pandemic will “effectively end” in the next 40 to 70 days, they added.

To be sure, there’s plenty of progress to make before the pandemic is no longer a public health threat. The US reported 98,513 new COVID-19 cases on Monday, lifting the seven-day moving average to 64,722, according to The New York Times.

And while the country is averaging 2.17 million vaccine administrations per day, reaching herd immunity at the current rate would still take roughly six months, according to Bloomberg data, which gauges how quickly the US can vaccinate 75% of its population.

Herd immunity is widely considered the most effective way to defeat COVID-19. Yet Wall Street’s more bullish forecasts suggest a mix of vaccinations and continued precautions could crush the virus in a matter of weeks.

Officials have warned that, while accelerated growth is on the horizon, there’s work to be done before the US stages a complete recovery. Reopening and new stimulus may fuel a sharp increase in inflation, but such a jump will likely be short-lived and fail to meet the Federal Reserve’s target, Fed chair Jerome Powell said Thursday.

The labor market also has “a lot of ground to cover” before reaching the central bank’s goal of maximum employment, Powell added. The chair indicated that, along with a lower unemployment rate, the Fed would need to see improved wage growth and labor-force participation before tightening ultra-easy monetary conditions.

Others are more optimistic. Treasury Secretary Janet Yellen said Monday that the $1.9 stimulus package nearing a final House vote can “fuel a very strong economic recovery.”

“I’m anticipating, if all goes well, that our economy will be back to full employment – where we were before the pandemic – next year,” Yellen said in an interview with MSNBC.

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Americans’ inflation expectations hit a 7-year high as the economic recovery picked up, Fed survey finds

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Meat in grocery store
Businesses are likely to lift prices in line with consumers’ anticipations.

  • Americans are bracing for the strongest inflation in a decade, according to a new Fed survey.
  • One-year inflation expectations rose in February to 3.1% from 3%, the highest reading since 2014.
  • Price growth hasn’t trended above the Fed’s 2% target since the late 1990s.
  • Visit the Business section of Insider for more stories.

Americans are bracing for the strongest inflation in a decade as new stimulus promises to accelerate the US economic rebound.

Consumers’ median year-ahead inflation expectations rose to 3.1% in February from 3%, according to the Federal Reserve Bank of New York’s Survey of Consumer Expectations – the highest reading since July 2014. The higher expectations come as COVID-19 case counts dive and business activity sharply improves.

Expectations for inflation three years from now held steady at 3%, according to the Fed.

Each reading would represent the highest inflation since 2011, according to data from the World Bank. Price growth hasn’t steadily trended above the Fed’s 2% target since the early 1990s, and the central bank has been trying to counteract weak inflation for decades.

The Fed now aims to seek inflation of more than 2% for a period of time after the pandemic, and the latest survey of consumers signals consumers are gearing up for such conditions.

Inflation expectations are often used as a preview of how price growth will trend. If consumers expect prices to rise a certain amount over time, businesses are likely to lift prices in kind and workers will seek similar increases in their pay.

To be sure, inflation expectations historically run higher than actual price growth. The University of Michigan’s inflation-expectations gauge, for example, has held above 2% over the past decade despite price growth rarely rising to that level.

The Fed has also indicated that, while inflation expectations may rise to their near-term target, it will wait until true inflation trends higher before it pulls back on ultra-loose monetary conditions. New stimulus and economic reopening are expected to fuel stronger price growth, but the effect will likely be short and temporary, central bank chair Jerome Powell said in February.

Elsewhere in the survey, uncertainty around consumers’ inflation expectations rose slightly for the one-year figure and dipped for the three-year forecast.

Home-price inflation expectations held at 4% last month, the highest level since May 2014. Expectations for the one-year change in gas prices rose to a record 9.6% from 6.2%. Median expectations for rent-cost growth similarly rose to a record 9% from 6.4%.

Household spending growth expectations rose to 4.6% from 4.2%, reaching the highest level since December 2014. Forecasted income growth was unchanged at 2.4%, landing well above the April 2020 low of 1.9% but below assumed inflation.

Americans also grew slightly more confident in making their debt payments and in interest rates rising, the Fed found.

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The US could return to full employment in 2022 due to stimulus boost, Yellen says

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Treasury Secretary Janet Yellen.

  • The US could reach full employment in 2022 thanks to Democrats’ stimulus plan, Sec. Yellen said.
  • The relief package can “really fuel a very strong economic recovery,” Yellen told MSNBC.
  • Yellen also dispelled concerns of the $1.9 trillion package sparking rampant inflation.
  • Visit the Business section of Insider for more stories.

One of the slowest-recovering sections of the US economy can return to pre-pandemic health as early as next year, Treasury Secretary Janet Yellen said Monday.

That would be the labor market.

While business output and retail sales have all trended higher in recent weeks, job growth continues to lag behind the overall recovery. Friday’s jobs report, while stronger than expected, still shows roughly 10 million Americans out of work. Weekly jobless claims remain at elevated levels. And the “real” unemployment rate, which measures people who have stopped looking for work, stands at around 9% after Friday.

Yellen sees the stimulus changing that, telling MSNBC that the $1.9 trillion stimulus plan moving through Congress will play a critical role in boosting demand and reinvigorating job creation.

“We expect the resources [in the bill] to really fuel a very strong economic recovery,” Yellen said. “I’m anticipating, if all goes well, that our economy will be back to full employment – where we were before the pandemic – next year.”

Senate Democrats approved the new relief package on Saturday, and the House is expected to vote on the last version before President Joe Biden signs it on Tuesday. Biden is overwhelmingly likely to be able to sign it into law before expanded unemployment benefits expire on March 14.

To be sure, “full employment” is different from the “maximum employment” target sought by the Federal Reserve. The central bank has indicated it won’t rein in its ultra-easy monetary policy until wage growth improves and the unemployment rates for minorities and low-income groups fall.

Yellen also dispelled concerns that inflation would run rampant as new stimulus hits households. Direct payments and the unemployment-insurance supplement included in the measure are likely to lift consumer spending and, in turn, lead businesses to raise prices. Republicans have argued the relief plan will lead the economy to overheat, but the Treasury Secretary isn’t concerned.

“I really don’t think that is going to happen,” Yellen said.”We had a 3.5% unemployment rate before the pandemic and there was no sign of inflation increasing.”

The comments come as Treasury yields hover at their highest levels since February 2020. Expectations for strong growth and higher inflation have led investors to dump government bonds and shift cash to sectors best positioned to thrive through the economic recovery.

The rapid leap in Treasury yields jostled markets and caught the Fed’s attention. Central bank officials have so far only made soft comments regarding the sell-off, but some on Wall Street are preparing for the Fed to further clarify its inflation expectations when policymakers meet on March 17.

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‘Flood gates are about to open’: Bank of America just boosted its forecast for 2021 US GDP growth for these 3 reasons

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The IMF said vaccines would help the US economy recover sharply in 2021

  • The US economy is set for “stellar” economic growth in 2021, Bank of America said in a note on Monday.
  • The bank increased its 2021 US GDP growth estimate to 6.5% from 6.0% as it has become “more convinced” that the economy is set for a rebound after the COVID-19 pandemic.
  • Detailed below are the three reasons why Bank of America just increased its 2021 US GDP growth forecast.
  • Sign up here for our daily newsletter, 10 Things Before the Opening Bell.

The US economy will experience “stellar” growth in 2021 as the COVID-19 pandemic subsides, Bank of America said in a note on Monday.

The bank increased its 2021 US GDP growth estimate to 6.5% from 6.0% as it has become “more convinced” that the consumer will get out and spend this year, the note said. The bank also sees heightened economic growth extending into next year, bumping its 2022 GDP growth estimate to 5.0% from 4.5%.

Here are the three reasons guiding Bank of America’s decision to increase its economic growth forecast, according to the note.

1. A larger fiscal stimulus package.

Congressional Democrats are pushing for a $1.9 trillion stimulus package that is scheduled to be voted on next month. But there is still work to be done on the bill, and some provisions proposed in the legislation will hit road blocks, BofA said.

“We now think that the bill will total $1.7 trillion, up from our prior assumption of $1 trillion. Not all provisions will hit the economy right away and we expect that $1.2 trillion of monies will hit this year with the rest spilling into next year and beyond,” BofA said, adding that the “flood gates are about to open.”

2. Better news on the virus front.

The recent news on the virus front has been “unambiguously positive,” BofA said, pointing to virus cases being down 72% from the January peak, with hospitalizations following closely behind. This encouraging data should help tightly locked down states like New York and California ease restrictions.

“Vaccinations are running at a faster-than-expected-rate, which should pull forward the timeline for successful reopening of the economy. This will help to unleash demand for leisure and other COVID-sensitive services even earlier than previously anticipated,” BofA said.

3. Encouraging economic data. 

Consumers quickly put their stimulus checks to work in December, with exceptionally robust retail sales data leading BofA to boost its first quarter GDP tracking estimate to 5.5%. A recovery in manufacturing has also materialized at a rapid pace as the housing market booms, evidenced by recent building permits data.

“The goods side of the economy is still riding high while the services side is waiting with bated breath to participate. We expect the economy to accelerate further in the spring and really come to life in the summer,” BofA said. 

The biggest downside risk to BofA’s estimates? If the virus curve steepens again, resulting in a fourth wave, according to the note, which added that it does not expect a rise in inflation will lead the Fed to hike interest rates too early. 

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