The U.S. economy will roar to life for the rest of this year and remain supercharged through 2022, the Congressional Budget Office said Thursday, though the analysts also warned Americans to expect inflation to rise “sharply” for several months.
The unemployment rate will fall to 4.6% at the end of this year and be back to pre-pandemic levels at some point next year, said CBO, delivering a glowing picture on the most politically important yardstick.
Americans who saved up during the pandemic are looking to spend, creating strong demand for goods and services. Inventories aren’t ready to handle that demand right now, thus the spike in inflation. The analysts said supply and demand will even out quickly and inflation pressures will dissipate by the end of the year.
In the meantime, Americans were vaccinated for COVID-19 faster than projected and communities scrapped social distancing policies earlier than anticipated.
CBO said Democrats’ coronavirus relief package, which President Biden signed in March, will pump hundreds of billions of dollars into the economy.
The result will be a fantastic year for the economy, with gross domestic product rising 7.4% in real terms year-to-year in 2021 and still running strong at 3.1% growth in 2022.
The economy will cool quickly in 2023, with GDP growth falling to 1.1% and rising only to 1.2% in 2024 and 2025, the CBO projected.
Analysts said the pattern is normal after a heated recovery but could prove problematic for Mr. Biden and congressional Democrats in 2024 as they face voters starting to feel a slowing economy.
The White House called this year’s GDP number proof that the president’s “economic plan is working.”
“The last time the economy grew at this rate was when Ronald Reagan told us it was ‘Morning in America’ in 1984,” the White House gloated in a press release.
Rep. John A. Yarmuth, Kentucky Democrat and chairman of the House Budget Committee, said the economic growth is a reason to double down and pass another round of government spending on infrastructure, social welfare and action against climate change.
Even with the recovery, though, the federal government will end this year deeply in the red, the CBO said Thursday. It projected a near-record $3 trillion deficit, just shy of last year’s record $3.1 trillion.
In February, the CBO pegged the figure at just $2.2 trillion. Most of the increase is a result of the coronavirus relief package.
The government will borrow 44 cents of every dollar it spends this year, collecting just $3.8 trillion in taxes and fees while paying out $6.8 trillion.
Debt will continue to be a problem, with Uncle Sam’s tab for public debt reaching $23 trillion. That will be larger than the entire country’s GDP, which will be $22.4 trillion.
By 2030, the national debt will be nearly $34 trillion.
Budget watchdogs said those numbers should be a wake-up call.
“While it made sense to borrow to weather the pandemic and jumpstart the recovery, the strong economic growth projections from CBO show that it is time to pivot away from further deficit-financing and towards paying for things and, ultimately, decreasing the national debt from its current path,” said Maya MacGuineas, president of the Committee for a Responsible Federal Budget.
The nonpartisan, nonprofit organization said just paying interest costs on the debt will be a $2.5 billion expense for the government each day by 2031.
The long-term numbers, while grim, are still slightly better than CBO’s previous estimate.
The White House said that, too, was confirmation that Mr. Biden’s plans are working. Besides, the White House said, the Trump administration oversaw $8 trillion in higher deficits during its four years.
Whether voters give Mr. Biden credit remains to be seen.
A Marist/NPR/PBS News Hour poll released Thursday found the country divided, with 44% saying the president has strengthened the economy and 45% saying he has weakened it.
The poll also found that 46% of those surveyed expect their family financial situation to improve over the next year, 30% say it will stay the same and 24% anticipate a deterioration.
The CBO is Congress’ official and nonpartisan scorekeeper. Its report is part of a series of checkups on the budget and the economy.
This version is rosier than the February installment, with the GDP estimate for this year at $22.4 trillion, about $450 billion higher than the previous estimate.
Next year’s GDP is now projected to be at $24.3 trillion, which is $1.2 trillion higher than the February estimate. The gap narrows later this decade as growth settles into a more normal pattern, CBO says.