BIDEN’S AGENDA DELIVERS SUPERCHARGED ECONOMIC GROWTH, EXPERTS DISMISS INFLATION FEAR-MONGERING

U.S. Economic Recovery Outpacing Other Advanced Economies as World Bank Nearly Doubles Projections of U.S. GDP Growth

Economic Experts Continue to Say Inflation is Not a Concern: 

Wall Street Journal: U.S. is the “only major country in which expectations for 2025 GDP among Wall Street forecasters are currently higher than they were in January 2020”

Nobel Laureate Professor Joseph Stiglitz: “Temporary price increases are exactly what one would expect in a recovery following a shutdown…there is no reason to believe that these movements will fuel inflation expectations and thus generate inflationary momentum

Goldman Sachs: Recent price increases will have “only limited effects on long-term inflation expectations”

WASHINGTON, D.C. — President Biden’s American Rescue Plan is delivering the fastest pace of GDP growth since 1984, according to the latest analysis from the World Bank which nearly doubled its January projections of US GDP growth from 3.5% to 6.8%. Thanks to the plan’s robust public investment, the U.S. economic recovery is now outpacing that of other advanced nations.

Meanwhile, experts continue to push back on inflation fear-mongers: 

  • Peter Orszag’s article in Bloomberg evaluates recent high-quality economic forecasts and evidence from other countries that show the current elevation in inflation is likely temporary. Orszag notes that “superforecasters” – that have traditionally outperformed analysts in many fields – “assign only a 7% chance that inflation will be high next year,” with a 93% chance of normal inflation and a 44% chance of inflation being below 2%. In addition, he notes that “these forecasts haven’t moved much despite all the recent press and market hoopla: In mid-March, the superforecasters saw a 5% chance of the high-inflation scenario for next year.” Finally, he notes that evidence from other countries indicates that “a large part of recent inflation is not unique to the U.S,” and appears unrelated to governments’ fiscal responses. Instead, “the fact that inflation is temporarily elevated in many countries highlights the role that supply constraints may be playing.”

  • A recent Wall Street Journal article comparing the United States’ economic recovery to the rest of the world’s argues that the concern of overheating “is a first world problem – and even there, a lopsided one.” Based on OECD data, the U.S. is the “only major country in which expectations for 2025 GDP among Wall Street forecasters are currently higher than they were in January 2020.” In addition, while U.S. growth is strong compared to pre-pandemic levels, its weakness relative to pre-2008 trends implies that “abandoning expansionary policies too soon is what really risks scarring the economy.” While recent upticks in demand have created some bottlenecks, “looking further out, it is shortage of demand, not supply, that poses the greater threat to the world economy.”

  • A report released this week from Goldman Sachs notes that “there are strong reasons to believe the inflation pickup will…remain transitory” and predicts PCE inflation of “around 2% in the longer term.” Goldman Sachs’ own trimmed core PCE, which excludes the most extreme short-term price changes “remains at just 1.56% year-on-year, half the standard core PCE rate.” This indicates the “unprecedented role of outliers in the recent inflation pickup,” and suggests recent price increases will have “only limited effects on long-term inflation expectations.” Longer-term forecasts confirm the short-term nature of price increases, as “for both the Survey of Professional Forecasters and TIPS breakevens, the 5-year 5-year forward inflation rate remains at 2% in PCE terms.” Goldman Sachs concludes that “consumers, forecasters, and traders still seem to expect PCE inflation of around 2% in the longer term, consistent with the speech by Fed Governor Lael Brainard last week.”

  • Joseph Stiglitz’s recent op-ed in MarketWatch argues that concerns about overheating “are premature” given that “temporary price increases are exactly what one would expect in a recovery following a shutdown.” He argues that “much of the current inflationary pressure stems from short-term supply-side bottlenecks” that stem from restarting the economy. Moreover, “there is no reason to believe that these movements will fuel inflation expectations and thus generate inflationary momentum, especially given the overall excess capacity around the world.” The greater concern is that “unless there is new public spending, the economy could once again suffer from insufficient aggregate demand.”

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