U.S. Economy Is Healing, but Budget Office Says Workers Have a Long Way to Go
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WASHINGTON – The United States economy will return to its pre-pandemic size by the middle of this year, even if Congress no longer approves federal funding to aid the recovery, the Congressional Budget Office said Monday. However, it will be years before everyone laid off from the coronavirus can go back to work.
Those predictions could further complicate President Biden’s ability to quickly pass a $ 1.9 trillion stimulus package, as moderate Republicans and even some left-wing economists raise concerns that too many new Bunds could overheat the economy.
Still, Democrats worry that families may put groceries on the table and avoid eviction or foreclosure as the pandemic continues to suppress economic activity. They are driving Mr Biden’s more aggressive plans forward and introducing budget decisions in the House and Senate on Monday that would allow legislation on the president’s proposals without getting Republican votes.
Mr. Biden was due to meet late Monday with a group of 10 Republican senators who have come up with their own proposal for $ 600 billion in economic aid. It would cut back many of the president’s spending ambitions, such as additional unemployment benefits and $ 1,400 direct payments to individuals, and completely remove other elements such as his proposed aid to state and local governments to help ease budget constraints.
Mr Biden, who spent three decades in the Senate, has welcomed talks with Republicans but has shown little willingness to significantly cut the cost of his plan. Monday’s Budget Office report provided some evidence of his position. Figures suggest the economy could take in significant new federal aid without fueling higher inflation or forcing the Federal Reserve to raise interest rates.
Congressional Democrats and many liberal economists on Monday reiterated their call for lawmakers to act swiftly and aggressively to help the large swath of Americans still struggling to recover, a message confirmed by Mr Biden’s aide.
White House press secretary Jen Psaki told reporters that the budget bureau’s report “is not a measure of how every American family is doing and whether the American people are getting the support they need.” Mr. Biden, she said, “believes the risk is not too small, but not great enough.”
The new forecasts from the bipartisan bureau, which regularly publishes budget and economic forecasts, show the economy is recovering faster than the bureau’s forecasts for the summer.
Officials told reporters on Monday that the brightening outlook was due to large economic sectors adapting to the pandemic better and faster than originally expected. It also reflected increased growth driven by a $ 900 billion economic aid package passed in December that included $ 600 direct controls for individuals and more generous and longer lasting benefits for the millions of people who are still unemployed.
The budget office is now assuming that the unemployment rate will fall from 8.4 percent in July to 5.3 percent at the end of the year. The unemployment rate in December was 6.7 percent. Economic growth of 3.7 percent is expected for the year, after a much smaller decline in 2020 than the budget office had expected.
Apr. 1, 2021, 5:02 p.m. ET
Other independent projections, including one from the Brookings Institution last week, have forecast that another dose of help – like the $ 1.9 trillion package proposed by Mr Biden – would help the economy grow faster and ahead of the pandemic by the end of the year.
Some household hawks fear that too much aid could waste money and fuel inflation. “It is probably better to overshoot than undercut, but there can be too much good,” said Maya MacGuineas, president of the Federal Responsible Budget Committee, a nonprofit in Washington. “Sending money to people who don’t need it, the overstimulation of the economy, or unnecessary debt has all made us all tidy up more things later.”
The Budget Office’s report currently shows only a low risk of overheating. The economy is expected to remain below potential levels on its current path through 2025. It should be below potential again by 2030. At the same time, great economic risks remain. The number of employed Americans will not return to pre-pandemic levels until 2024, budget officials predicted, reflecting ongoing difficulty in shaking off the virus and returning to full economic activity. According to official figures, unemployment will not fall to pre-pandemic levels of 3.5 percent by the end of the decade.
Fed chairman Jerome H. Powell warned last week that the economy was “far from a full recovery”, millions were still unemployed, many small businesses were under pressure, and that the economic outlook would largely depend on success at that Contain the virus.
Bringing the pandemic under control was also factored into the budgetary office’s projections, and officials said the recovery of growth and jobs could accelerate significantly if health officials were able to deploy vaccines more quickly.
Right now, the Budget Bureau sees little evidence that growth will be hot enough in the years ahead to spur a rapid spike in inflation. It predicts inflation levels below the Federal Reserve’s target of 2 percent for years, even if the Fed keeps interest rates close to zero.
In response to a call from Invest in America, a new group in Washington that is pushing lawmakers to aggressively spend on economic aid, Anna Stansbury, an economist with Harvard’s Inequality and Social Policy Program, said the budget bureau estimated “The real labor market story is that we may not reach full employment until the late 2020s. “
Ms. Stansbury said that a delay in full employment – if almost everyone who wants to work has a job – “would mean incredibly high unemployment, especially for African American and Hispanic workers. The plan that President Biden is proposing will help us achieve full employment extraordinarily faster than the path we are currently on. “