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Washington, U.S. | Xinhua | The 1.9 trillion U.S. dollar stimulus U.S. President Joe Biden signed into law recently is expected to trigger a robust economic rebound, but some inflation may be on the horizon, economists said.
This comes a year after the U.S. economy took a nosedive off a cliff and saw the deepest recession since WWII, after state governments shut down businesses in a move that left millions of Americans unemployed, after the COVID-19 pandemic hit the United States.
But as U.S. states open up, vaccine distribution picks up speed, and the stimulus makes its way through the economy, economists foresee a surge in economic growth.
All of this “will form a powerful cocktail that lifts real GDP growth to its fastest rate since the early 1980’s,” Gregory Daco, chief U.S. economist at Oxford Economics USA, told Xinhua.
The Congressional Budget Office (CBO) said last month it predicts “a stronger economy than it did in July 2020, in large part because the downturn was not as severe as expected and because the first stage of the recovery took place sooner and was stronger than expected.”
Desmond Lachman, resident fellow at the American Enterprise Institute and a former official at the International Monetary Fund, told Xinhua that the very large budget stimulus “is bound to supercharge the U.S. economy in the remainder of this year.”
“That pent-up demand must be expected to be released once most of the American public is vaccinated,” Lachman said.
The tourist sector, in particular, is expected to see a surge.
“With a strong economy and with most of the American population expected to be vaccinated by mid-year, there is every reason to think that there will be a strong recovery in the tourist sector in the second half of this year,” Lachman said.
Daco said households will drive the recovery, while lower-income families will benefit from the stimulus, including checks, unemployment benefits, and low-income tax credits.
“Higher-income families will be able to spend their steady income streams and some of the accumulated 1.8 trillion (U.S. dollars) in excess savings,” Daco said, referring to the massive savings Americans have built up over the past year.
However, many economists fret that the coming economic surge could cause inflation.
The U.S. Federal Reserve on Wednesday raised its forecast for 2021 gross domestic product by more than 50 percent from its December estimate while holding interest rates steady.
The country’s GDP is expected to increase 6.5 percent in 2021 before cooling off in later years, according to the Federal Open Market Committee, the central bank’s monetary policy making group. That is sharply higher than the 4.2 percent forecast made in December.
Expectations for core inflation moved higher. The committee is looking for a 2.2 percent gain in inflation this year, which is estimated to drop to 2 percent in 2022.
“The fly in the ointment” is that the stimulus could “lead to an overheating of the U.S. economy by end year and to higher inflation,” Lachman said.
Recent weeks have seen the U.S. inflation debate range from one extreme to the other, with one side predicting runaway inflation and the other outright dismissing any possibility of inflation.
Meanwhile, recent data suggests that higher-income Americans will continue to save their money at unprecedented levels — and that could hurt a recovery that will depend on consumer spending.
A recent Pew Research survey found that Americans, particularly higher earners, have reduced their spending over the past year. Thirty-two percent of upper income adults said they were now saving more than since the pandemic and draconian lockdowns began, the survey found.
Biden’s massive stimulus has been criticized by a number of Republicans, as well as by many ordinary Americans.
While funds go to businesses hit by the lockdowns and the pandemic, billions of U.S. dollars go to areas that have nothing to do with COVID-19 or the economy, they say.
Americans — especially those in the middle class, as the wealthy are often able to avoid taxes — fret that they will have to foot the bill for a stimulus they blast as loaded with pork and items on Democrats’ wish list.
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Xinhua
