Better Stimulus Odds Are Shot in the Arm for US Growth Expectations

The probability of more fiscal relief from Congress has risen—good news for the US economy and a boost to our growth forecast. While risks remain, and it’s too early to talk about the pandemic in the past tense, we’re optimistic the economy can return to more normal footing soon.

A Fiscal Relief Boost Is Now More Likely

For much of 2020, we made the case that, with monetary policy tapped out, fiscal policy is the key variable in the US economic outlook. In 2021, government spending still has a big role to play as a bridge to recovery from the COVID-19 pandemic.

The Biden administration’s fiscal plans are now becoming clear, and Democratic control of the Senate gives those plans better odds of success. As a result, we’ve revised our economic outlook upward (Display). Assuming that roughly half of the $1.9 trillion in the president’s proposed spending will be enacted into law later this quarter, we’ve upgraded our 2021 gross domestic product (GDP) forecast to 6.5% and our 2022 GDP forecast to 4.6%.

A chart showing the forecast growth of US gross domestic product quarterly under an old estimate and a new, higher, one.