CBO sees supercharged recovery as pandemic dissipates

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The U.S. economy will roar to life over the rest of this year and remain supercharged for a year or two beyond, the Congressional Budget Office said Thursday, though the analysts also warned Americans to expect inflation to rise “sharply” for several months.

Unemployment will fall to 4.6% at the end of this year and be back at pre-pandemic levels at some point next year, CBO said, delivering a glowing picture on the most politically important yardstick.

Americans who saved up during the pandemic are also looking to spend, creating strong demand for goods and services.

Inventories aren’t ready to handle that demand right now — thus the sharp spike in inflation in coming months. But CBO said things will even out quickly and inflation pressures will dissipate by the end of the year.

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.

But, the agency predicted, things will cool quickly in 2023, with GDP growth falling to 1.1%, and rising only to 1.2% in 2024 and 2025.

Even with the economy recovering, the federal government will still end this year deeply in the red, the CBO said Thursday, projecting a near-record $3 trillion deficit, just shy of last year’s record $3.1 trillion figure.

That deficit figure is up sharply from February, when the CBO pegged it at $2.2 trillion.

Most of that is due to the coronavirus relief package that Democrats pushed through Congress for President Biden to sign in March.

The government will borrow 44 cents of every dollar is spends this year, collecting just $3.8 trillion in taxes and fees this year while paying out $6.8 trillion.

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