Overshooting the old GDP trend path in Q3 21
|Key takeaways
We argue that many elements of President Joe Biden’s relief p ackage should be considered as “insurance” (or automatic stabilisers) and not discretionary fiscal spending. A lot will fall out naturally next year. That said, some elements are clearly very stimulating.
We argue that the US GDP will overshoot its pre-corona trend path in Q3 21 and stay above suggesting there are no long-lasting damages to the economy from COVID-19 (on the contrary the support may undo some of the damages created by the last crisis).
We now forecast GDP growth of 7.5% this year and 5.3% next year (up from 3.3% and 3.8%, respectively). We expect the unemployment rate to decline below 4% in H2 21, when activity in the employment-heavy sectors returns to normal.
We argue that inflation is set to move higher but it will take some time before it gets long-lasting. We expect PCE core inflation to reach 2% by end-2022.
Biden’s plan: Discretionary in nature but mostly insurance in practice
President Joe Biden’s relief p ackage of close to USD1,900bn (or 8.1% of nominal counterfactual 2021 GDP assuming nominal GDP would have grown in line with the 2017- 2019 trend in 2020-21 without COVID-19) will soon be approved, on top of the ~USD900bn package agreed upon in December (3.9% of nominal counterfactual 2021 GDP).
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.