The first projections of US economic production in the first quarter indicate a prolongation of the rebound that began in the third quarter of last year. A nowcast set indicates that growth is currently on track to accelerate slightly from the growth rate announced for the last quarter of 2020.
Production in the first three months of 2021 is expected to increase by 4.5% (actual annual rate), based on the median forecast of several estimates compiled by CapitalSpectator.com. This is a modest improvement from the 4.0% increase reported by the Bureau of Economic Analysis for the fourth quarter of last year.
Evolution of real GDP in the United States
Economists are also improving their forecasts, based on the fiscal stimulus plans of the administration of US President Joseph Biden, CNN Business reports:
âAfter providing $ 4 trillion in aid last year, Washington is expected to inject an additional $ 2 trillion in deficit-funded support in 2021, according to Moody’s Analytics. This represents more than a quarter of annual GDP. United States.
âThat’s a lot of economic juice,â said Mark Zandi, chief economist at Moody’s Analytics.
Some economists advise relaxing the ambitious fiscal policy to avoid triggering runaway inflation. But the pre-pandemic mindset of policymakers has less influence these days, at least within the Biden administration.
âI have spent many years studying inflation and worrying about inflation,â Treasury Secretary Janet Yellen said earlier this month. âBut we are facing a huge economic challenge here and enormous suffering in the country. We have to sort it out. This is the biggest risk.
Tim Duy, an economist who follows the Federal Reserve for SGH Macro Advisors, wrote today in a note to clients that:
âThe Fed under Powell clearly intends to fully support the efforts of the Biden administration to revitalize the economy. This does not mean that the Fed will be on the long end of the curve, but it does mean that the Fed does not intend to withdraw monetary support too early in the cycle.
Risks aside, forecasters predict that fiscal and monetary policies will boost economic growth in the near term. The expected acceleration is for the moment modest, according to econometric forecasts. But if conventional forecasts from dismal scientists are any indication, the nowcast is due to upward revisions in the days to come.
A key risk for this rosy outlook: the pandemic takes an unexpected turn for the worse. While trends in newly reported coronavirus cases, hospitalizations and deaths suggest the worst is over, the potential for a rebound from the coronavirus variants cannot yet be ruled out. USA Today reports:
“Dr Peter Hotez, dean of the National School of Tropical Medicine at Baylor College of Medicine in Houston, said if the rate of contagiousness and case fatality of the variant known as B.1.1.7 is found to be being the same in the United States as in the United Kingdom, “I fear we will reach a staggering death toll by the summer and fall.”
Figures released to date, however, suggest that the recovery will continue in the first quarter of this year. Current assumptions predict that U.S. production will exceed its pre-pandemic trend by the third quarter of this year, according to an estimate highlighted in the Financial Times.
Also from FT:
“Joe Biden’s strategy for the US economy is the most radical change from the policies in place since Ronald Reagan’s free market reforms 40 years ago.”
“With public borrowing and spending plans on a scale not seen since World War II, the administration is embarking on a huge tax experiment.”