JPM Joins "Overheating" Bandwagon: Sees 6.4% GDP As Stimulus Forecast Doubles To $1.7TN

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Just a week after Goldman unleashed a wave of worry about tighter financial conditions with its revised forecast boosting 2021 and 2022 GDP up by 0.2% each year, to 6.8% and 4.5%respectively, as a result of a far bigger stimulus than its had originally expected ($1.5 trillion vs $1.1 trillion originally), which set the US economy directly on collision course with overheating (and prompted Goldman to pull forward its first rate hike estimate to H1 2022), other banks have started jumping on the overheating bandwagon, and today JPMorgan became the latest bank to nearly double its Covid stimulus forecast, which led the bank to aggressively boost its 2021 and 2022 GDP estimates as well.

In a note to clients, JPM's chief economist Michael Feroli made the following forecast revisions:

  • We now look for a $1.7 trillion fiscal stimulus package (up from $900 billion) to be passed in March
  • Even before that kicks in, growth appears to be on firmer footing at the start of the year
  • All told we now expect 6.4% (4Q/4Q) GDP growth this year and 2.8% next year
  • We see the labor market getting back to full employment, or around 4% unemployment, by 2Q22…
  • …and expect core PCE inflation to reach 2.0% by 4Q22, with balanced risks around the outlook
  • While the outlooks for growth and inflation are moving up, Fed rhetoric appears to be getting more dovish

Feroli first explains the reason behind his dramatic stimulus forecast revision:

Shortly after the two Georgia Senate run-off elections in early January delivered effective control of that chamber to the Democratic Party we penciled in an assumption of another $900 billion of fiscal stimulus. This sought to balance the risk of a smaller amount reached through a bipartisan deal and a larger amount arrived at by the Democrats using the budget reconciliation process. Since then the odds of a bipartisan deal have diminished to near zero, and Congressional Democrats have pushed forward with a much larger package. Thus, we revise our outlook to incorporate a $1.7 trillion package to take effect in March.

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