Credit rating group, Moody’s has given an upbeat and thumbs up approval for the Biden package.
In analysis released before the speech was delivered – but obviously based on an extensive briefing, Moody’s chief economist, Mark Zandi reckoned it will boost US growth this year to 5% or better, and the same in 2022.
“This (the Biden package) would bring total support since the pandemic hit to $US5.2 trillion, equal to an astounding 25% of GDP—approximately three times the fiscal support during the financial crisis, and substantially more than provided by any other country in the world. (Japan is second and Australia is third in the ranking of size of stimulus to GDP)
“With this additional boost, real GDP should be robust at just over 5% this year and the same next, bringing the economy back to full employment by early 2023.”
He sees economic growth in the current first quarter of 2021 at 4%, rising to more than 5% for the year by year’s end.
“That is nearly a full year sooner than we had anticipated when assuming the Republicans would maintain control of the Senate and stymie the Biden administration’s efforts for additional fiscal support,” Zandi wrote on Thursday.
He also forecast that the US would return to full employment by the end of 2022 early 2023.
“With the economy projected to achieve full employment by early 2023, we expect the Fed to begin normalizing short-term rates by fall 2023. By then, inflation should be firmly above the Fed’s 2% target and inflation expectations even higher.
“It will take approximately three years for the Fed to increase the federal funds rate target to its 2.5% long-run equilibrium rate.”
“Long-term rates will rise sooner as the Fed tapers its quantitative easing by early 2022, and bond investors anticipate a full-employment economy with higher inflation.
“Ten-year Treasury yields are projected to end this year near 1.5%, 2.3% by year-end 2022, and close to 3% when the Fed starts normalizing short-term rates in fall 2023,“ Zandi forecast.
But he did warn that the immediate outlook won’t be good.
“The next few months will be difficult, but the next few years look increasingly bright. The raging pandemic will fade by mid-2021 once a majority of Americans are vaccinated, and the economy will quickly get back on track thanks in significant part to robust fiscal and monetary policy support.”
And Zandi forecast that taxes will rise to help meet the cost of the support.
