Could Democrats be fighting the last war and wasting money on another $ 1.9 trillion economic relief package?
Perhaps, if St. Louis Federal Reserve president James Bullard is right. The Fed official thinks the economy is already set for a strong recovery in 2021.
It’s possible U.S. economic growth could top 6% this year, he said. “There’s certainly a chance we grow faster than China in 2021,” Bullard said.
Even the first three months of this year are looking strong. Only weeks ago, Wall Street economists were penciling in a contraction, Bullard noted.
But strong growth should really kick in as soon as April, as more Americans are vaccinated, he said.
So Democrats could keep their powder dry for another day, he said.
“Democrats have the power here and can do what they want. But the trade-off would be, in my mind — do they want to invest a lot in this recovery that already looks strong or do they want to save firepower to do other things that they might want to do?” Bullard said during a discussion with reporters after he spoke to the CFA Society of St. Louis.
President Joe Biden and congressional Democrats have said a Republican fiscal stimulus package of $ 618 billion is insufficient.
Senate Majority Leader Chuck Schumer said Democrats cannot accept a package “that is too small or too narrow to pull our country of of this emergency.”
In his talk to reporters, Bullard said the major downside risk to his forecast was the chance the vaccines might turn out to be not as effective as expected against mutations of the coronavirus.
While the unemployment rate has fallen sharply to 6.7% after hitting a peak of 14.8% in April, many economists worry the 10.7 million unemployed Americans who have lost their jobs during the pandemic will have a hard time finding work again and the jobless rate may not improve much further.
But Bullard noted many of these workers believe they are on temporary layoffs. If they are called back, he thinks the unemployment rate could fall to 4.5% by the fourth quarter.
“The problem of the permanently unemployed isn’t as big as it was during the aftermath of the financial crisis,” Bullard said.
“There is still a tendency to think that this is a replay of the global financial crisis and a replay of the recovery from the global financial crisis. I don’t think its anything like that, this shock is very different.
“The idea that you’re still not going to recover three, four or five years from now is not the right way to view what’s going on here,” he said.
In a separate speech late Wednesday, Chicago Fed President Charles Evans was also upbeat about the economic outlook for 2021, but he said aggregate data “can mask distressingly wide economic disparities.”
He said it wasn’t appropriate for him to offer an opinion on the size of a relief bill, but added it was important that fiscal policy sill support low-wage workers who are struggling to find work.
He said if Congress did too little it would hurt many workers.
“I think doing more is better than doing less, in the current situation,” Evans said. “We have a ways to go before we get back to the vibrant economy we had on the eve of the pandemic.”
The Chicago Fed president, who is a voting member of the Fed’s policy committee this year, said it will be hard to read the GDP data.
“We could see aggregate growth numbers bounce around quite a bit as some large, but transitory, swings in activity occur while particular sectors readjust,” he said.
The same will be true for inflation data, with prices rising in various sectors.
But Evans said he thinks inflation will end the year below the Fed’s 2% target. It won’t be until the mid-2020s before inflation rises “moderately” above 2% on a sustained basis, he said.
It is “critical” for the Fed to look through temporary prices increases “and not even think about thinking about adjusting policy until the economic criteria we have laid out is realized,” he said.
“So I see us staying the course for a while,” Evans added.
