IN THIS ISSUE:
1. CBO Raises Its Economic Outlook For 2021
2. GDP To Reach Pre-Pandemic Level By July 1
3. Years To Get Economy Back To Full Potential
4. Fed Will Tolerate Post-Pandemic Inflation Spike
5. Final Thought: Why Do We Need More Stimulus?
Overview – CBO Raises Its Economic Outlook For 2021
On February 1 last week, the Congressional Budget Office (CBO) released its latest round of economic forecasts for 2021, and most of the new estimates are stronger than the CBO’s previous forecasts in July of last year.
The CBO said its latest forecasts are stronger because the recession in the first half of last year was not as severe as previously reported, and the recovery which began in the second half of 2020 has been stronger than previously estimated.
Furthermore, the CBO said it expects the US economy to fully recover to its pre-pandemic size by the middle of this year and predicts GDP growth will average 4.6% for all of 2021, following the loss of 3.5% in 2020. The CBO also predicted the US unemployment rate will continue to fall from 6.7% currently to 5.3% by the end of this year and continue falling over the next several years.
While the latest CBO projections are viewed as mostly positive, not all the news was good. For example, while the CBO believes the economy will be back to pre-pandemic levels by mid-year, the agency also believes it will be several more years before the economy is back to its full potential, had the pandemic not occurred. I’ll explain this as we go along today. Let’s jump in.