US GDP 2021 | GeorgMedia

July 2, 2021

IMF lifts US growth outlook for this year to 7%, says Fed may need to hike rates earlier than it expects

FILE PHOTO: The International Monetary Fund (IMF) headquarters building is seen ahead of the IMF/World Bank spring meetings in Washington, U.S., April 8, 2019. REUTERS/Yuri Gripas — FILE PHOTO: The International Monetary Fund (IMF) headquarters building is seen ahead of the IMF/World Bank spring meetings in Washington
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The IMF raised its forecast for US growth to 7% for 2021, from the previously predicted 4.6%
The fund believes the Federal Reserve will need to hike interest rates in late 2022, or early 2023.
Last month, the Fed said it expected to raise rates in 2023, but individual policymakers expect earlier hikes.
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The International Monetary Fund has lifted its outlook for US economic growth to 7% for this year, and believes the Federal Reserve will raise interest rates by the end of 2022, as recovery takes root.

The IMF had previously anticipated an annual growth rate of 4.6% for this year. Should the US economy indeed by 7% in 2021 – as both the Fed and now the IMF expect – this would be the fastest expansion since 1984.

Kristalina Georgieva, the IMF managing director, said the improved outlook was based on the American Jobs and Families plans being implemented in line with the outlines presented by the Biden administration, as they appear likely to improve living and income standards in the long term.

“We believe that these two packages will add to near-term demand, raising GDP by a cumulative 5¼ percent over 2022-24. And-perhaps more importantly-our assessment is that GDP will be 1 percent higher even after 10 years, thanks to the significant, positive effects on labor force participation and productivity introduced by these two plans.” she said in a report released on Thursday.

Biden’s infrastructure plan was also referenced in the IMF’s assessment. The bipartisan program allocates $1.2 trillion over the next five years to improving things such as roads, broadband access and education.

The IMF also said it expected US interest rates to rise more quickly than the Fed currently anticipates.

“Presuming staff’s baseline outlook and fiscal policy assumptions are realized, policy rates would likely need to start rising in late-2022 or early-2023,” the IMF said.

At its mid-June meeting, the Fed said it expected to raise interest rates by 2023. Several individual policymakers have however since said they expect monetary policy to tighten sooner than this.

The Fed’s more hawkish outlook initially fueled some concern among investors, particularly relating to the implications for the central bank’s highly accommodative monetary policy stance. Stocks wavered for a few weeks, but have since recovered and hit successive record highs in the last week. Government bond yields have fallen to around six-month lows, highlighting that investors trust the Fed’s ability to target inflation without derailing the economy.

Both the IMF and the Fed expect inflation to be transitory and short-term, rather than weigh on markets for a prolonged period of time.

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May 31, 2021

The US economy is set to grow at the fastest pace since 1984 thanks to stimulus and the rapid vaccine rollout, the OECD said

GettyImages 1233170656 — The US has rolled out coronavirus vaccines quickly.
Jeenah Moon/Getty Images

The US economy is set to grow at the fastest pace since 1984 this year, the OECD has said.
US gross domestic product would grow 6.9% in 2021, after contracting 3.5% in 2020, it said.
The organization said the US’ huge stimulus and speedy vaccine rollout was boosting growth.
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The US economy is set to grow at the fastest rate since 1984 this year thanks to government stimulus and the speedy rollout of coronavirus vaccines, the Organisation for Economic Co-operation and Development (OECD) has said.

In its latest economic outlook, the OECD group of rich countries said US gross domestic product would grow 6.9% in 2021, after contracting 3.5% in 2020. That would be the biggest increase since 1984, according to World Bank figures.

The OECD’s new US forecast was an upgrade from March’s prediction of 6.5% growth, which was itself a sharp improvement on a December estimate of 3.2%.

The successive upgrades reflect the impact of both President Joe Biden’s $1.9 trillion stimulus bill and of vaccines, which are allowing states to reopen their economies. More than half of the US population has now had at least one shot.

“Substantial additional fiscal stimulus and a rapid vaccination campaign have given a boost to the economic recovery,” the OECD analysts wrote in their report.

The authors said the recovery had picked up speed: “Indicators of consumption activity have risen, with strong household income growth and a gradual relaxation of containment measures boosting spending.”

They added: “The reopening of the economy due to widespread vaccination of the population will enable activity in more sectors to return to normal.”

The OECD is a global organization that promotes growth and trade, with 38 member countries. Its economic forecasts are closely watched.

It predicted that the global economy would grow 5.8% in 2021, up from its March forecast of 5.6%.

Yet the global recovery will be highly uneven, and the pandemic will hit some countries’ living standards hard, according to OECD chief economist Laurence Boone.

“It is with some relief that we can see the economic outlook brightening, but with some discomfort that it is doing so in a very uneven way,” she said in an introduction to the report.

“It is very disturbing that not enough vaccines are reaching emerging and low-income economies. This is exposing these economies to a fundamental threat because they have less policy capacity to support activity than advanced economies.”

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April 6, 2021

The US economic recovery is turning from ‘forecast to fact’ but inflation is not a concern, Goldman Sachs says

GettyImages 1310072450 — Hiring picked up rapidly in March as the US economy continued to reopen
Noam Galai/Getty Images

Goldman said the strong US economic recovery is turning “from forecast to fact” as hiring picks up.
Its chief economist said the economy should grow 7.2% in 2021 after contracting 3.5% in 2020.
Yet Goldman said it is not overly worried about inflation, because unemployment should weigh on prices.
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The jump in employment in March shows that the rapid US economic recovery is “turning from forecast to fact,” Goldman Sachs has said.

Goldman’s chief economist, Jan Hatzius, said that despite the predicted 7.2% jump in US GDP in 2021, inflation was unlikely to be a problem as the economy would stay “well below” full employment.

The US economy added 916,000 nonfarm payroll jobs in March, data showed on Friday – far above economists’ expectations of 660,000.

Hatzius said in a note on Monday evening that the data “confirms that sharp acceleration is turning from forecast to fact.”

He said Goldman expects the US economy to grow rapidly in the first half of this year, thanks in large part to President Joe Biden’s $1.9 trillion stimulus package.

“We expect real GDP growth to climb from 7.5% in Q1 to 10.5% in Q2 on the back of the recent $1,400 tax rebates as well as the ongoing reopening of the most covid-sensitive sectors,” Hatzius wrote.

Goldman predicts the economy will grow 7.2% in 2021, well above the consensus estimate of 5.7%, after shrinking 3.5% in 2020. It then expects growth of 4.9% in 2022.

Yet Goldman’s chief economist said the bank is less worried than some others about “overheating” in the economy – that is, dangerous inflation.

“Our estimates show that the various growth boosts – from reopening, fiscal easing, and financial conditions – should only push output and employment modestly beyond full capacity.”

Goldman has downgraded its forecast for “core personal consumption expenditures inflation” to peak at 2.3% year-on-year in April, up from 1.4% in February.

Stronger growth expectations have prompted concerns among some investors that inflation could start to rise sharply, potentially causing the Federal Reserve to cut back on support for the economy sooner than expected.

Yet Goldman predicted that underlying US inflation would remain “well below the Fed’s 2% target, consistent with an economy that remains well below full employment.”

“All this has increased our confidence that Fed officials will be able to stay the course in exiting only very gradually from their highly accommodative stance,” Hatzius wrote.

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March 10, 2021

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

Mall coronavirus retail — Paul Bersebach/MediaNews Group/Orange County Register/Getty Images

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.
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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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March 2, 2021

US GDP growth will likely miss a key forecast if the global economy falters, Dallas Fed says

US Mall coronavirus — A shopper goes up in the escalator in Baldwin Hills Crenshaw Plaza on Tuesday, Dec. 8, 2020, in Los Angeles.
Dania Maxwell / Los Angeles Times/Getty Images

Weaker-than-expected global economic growth could hinder the US recovery, Fed researchers said.
The CBO expects US GDP to grow 4.6% in 2021, but the chances of that fade on slower global growth.
The Fed simulated 2021 growth 1 million times and found weak global growth almost guarantees US underperformance.
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The US economic recovery hinges a great deal on how the rest of the world rebounds, according to researchers at the Federal Reserve Bank of Dallas.

For the moment, the US is expected to fully recover from its virus-induced downturn by the end of the year. The nonpartisan Congressional Budget Office projects gross domestic product will expand by 4.6% in 2021, offsetting the 3.4% contraction seen in 2020.

Yet global risks could drag US growth below the baseline forecast, Fed researchers Jarod Coulter and Enrique Martínez-Garćia said in a study published Tuesday. A model of cross-country growth dependencies shows significant downside risks, and even that outlook is a relatively conservative scenario, according to the team. The data doesn’t reflect cross-country events linked to the pandemic.

Accordingly, the Fed’s estimates suggest a greater likelihood of weaker-than-expected global growth. And further modeling suggests a weaker global rebound would cut into growth in the US.

By simulating 2021 growth 1 million times, the team found that disappointing outcomes practically guaranteed the US would miss the CBO’s estimate.

Chart via Federal Reserve Bank of Dallas.
Federal Reserve Bank of Dallas

In the worst-case outcomes – 0.5th percentile – global growth coming in below 2.7% equated to a near statistical certainty the US would grow by less than 4.6%. There was also a 55.3% chance that US growth would come in below 1%, essentially relegating the country to another year of bleak economic performance.

Even the bottom 25th percentile of scenarios, in which global growth is less than 5%, show a sizeable impact on the US recovery. Such outcomes set a 95.8% chance that US growth would land below the CBO’s projection, and a 17% chance it would come in below 1.9%.

The study suggests that, in “not particularly severe” tail events, poor global growth often coincides with US GDP growth that’s below the baseline estimate.

“The more extreme the negative global growth outcome becomes, the more likely that the US recovery would falter in 2021,” the team said.

Such global spillover can also erode the US’ long-term economic potential, the researchers added. The CBO revised its projection for potential real GDP slightly lower from January 2020 to February 2021, implying that, even after the virus subsides, the economy’s maximum possible output has been dented.

The central bank’s modeling signals the US’ path forward is notably vulnerable to a slowdown in the global recovery, and that growth through 2021 is critical to the country’s ability to return to pre-pandemic output.

“The longer the recession drags on, the more significant the impact on the U.S. economy’s potential can become – mostly through its impact driving up long-run unemployment – and the longer it may take for real GDP to return to its prerecession path,” the Fed researchers said.

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January 15, 2021

Bank of America lifts its forecast for US economic growth on hopes for sweeping Biden-backed stimulus

President-elect Joe Biden speaks about the US economy following a briefing with economic advisors in Wilmington, Delaware, on November 16, 2020.
Kevin Lamarque/Reuters

Bank of America lifted its forecasts for US full-year and first-quarter economic growth, citing hopes for new stimulus under the Biden administration and strong consumer spending trends.
The bank’s economists lifted their first-quarter GDP forecast to 4% growth from 1% and boosted their 2021 estimate to 5% from 4.6% expansion.
Early indicators suggest the $900 billion relief package signed by President Trump last month is already lifting spending activity, the team said in a note to clients.
The $1.9 trillion relief plan revealed by Biden on Thursday can further accelerate a return to pre-pandemic economic strength, they added.
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Robust consumer spending and the likelihood of additional stimulus led Bank of America to boost its outlook for US economic growth on Friday.

Economists led by Michelle Meyer expect US gross domestic product to grow 5% through 2021, up from the previous estimate of 4.6%. The bank’s first-quarter GDP forecast was also revised higher, to 4% from 1%.

Early indicators suggest the $900 billion relief package passed by President Trump late last month is already lifting economic activity from its nearly frozen state, the economists said. Debit- and credit-card spending is up nearly 10% from the year-ago period as of January 9, compared to being up just 2% before new stimulus was rolled out.

Additional stimulus from a Biden administration adds to the bank’s bullish forecast. The President-elect revealed a $1.9 trillion relief plan on Thursday, pitching $1,400 direct payments, state and local government aid, and a $15 minimum wage as critical to reviving the virus-slammed economy.

Democrats’ new, albeit slim, majority in the Senate signals a version of the plan will reach Biden’s desk. That extra support stands to provide a major backstop for the economy through the new year, Bank of America said.

“There are risks in both directions, but we see them skewed to the upside,” the team said in a note to clients. “There is now a ‘fiscal put’ akin to the ‘Fed put.'”

Fresh fiscal relief also takes some pressure off of the Federal Reserve in the near-term, the economists added. Should new stimulus fuel stronger growth and inflation, the Fed could rein in its easy monetary policy stance sooner than initially expected.

The Biden-backed stimulus also provides the fiscal support Fed policymakers clamored for throughout 2020. If the economy weakens further, the government can coordinate a fiscal- and monetary-policy response akin to that seen at the start of the pandemic, the team said.

Still, elevated COVID-19 cases and strict economic restrictions will delay a full recovery, they added. Bank of America expects GDP will return to pre-pandemic levels in the third quarter.

While front-loaded stimulus boosted the firm’s first-quarter forecast, the early passage of a relief deal cut its second-quarter growth estimate to 5% from 7%.

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