WASHINGTON (NYTIMES) - The US economy is rebounding faster than expected and is on track to regain all the jobs lost in the pandemic by the middle of next year, partly as a result of enormous amounts of federal spending that will push the budget deficit to US$3 trillion (S$4.05 trillion) for the 2021 fiscal year, the Congressional Budget Office said Thursday (July 1).
The office, a non-partisan scorekeeper, predicts the economy will grow by 6.7 per cent for the year, after adjusting for inflation.
That would be the fastest annual growth since 1984 in the United States, and it is significantly faster than the budget office and the Biden administration had each predicted earlier this year.
Budget office officials said the uptick in growth stemmed in large part from aggressive government stimulus, including the US$1.9 trillion aid package that President Joe Biden signed into law in March.
They also said the economy appears to be strengthened by consumers spending the savings they built up during the pandemic last year, which was fuelled in part by multiple rounds of stimulus passed under President Donald Trump, and by a faster-than-anticipated return to normalcy in the economy as vaccinations have spread through the population.
The budget office sees the unemployment rate falling below 4 per cent next year and staying there for years to come.
It also sees inflation rising above recent trends to hit 2.6 per cent for the year, which is stronger growth than the office forecast in February.
But officials see those price pressures subsiding in the second half of the year, as a variety of supply constraints in areas like lumber and automobiles ease.
The spending approved by Mr Biden will increase the deficit by US$1.1 trillion for the fiscal year, which ends in September, the office said.
The US$3 trillion total deficit would be the second-largest since 1945, in nominal terms and as a share of the economy, behind the pandemic 2020 fiscal year.
But the increased growth that is accompanying the larger deficit this year will actually improve the country's fiscal outlook - slightly - over the next decade, with the total deficit over the next decade falling by about 1 per cent%, the budget office said.
