Strong US Economic Rebound Forecast For 2021

The late summer news cycle is not exactly brimming with important or interesting topics this week. With the election less than 50 days away, the mainstream media is intently focused on bringing down President Trump – nothing new there. So today, I’ll touch briefly on several developments which deserve our attention and I think you’ll find interesting.

IMF Still Expects Strong Economic Rebound in 2021

For starters, the International Monetary Fund recently updated its economic forecasts for the US in 2020 and 2021. The IMF now forecasts the US economy will decline by only 4.9% in 2020. That assumes, of course, there has been a significant economic recovery in the 3Q and it will continue between now and the end of the year – which remains to be seen.

The other good news is, the IMF predicts the US economy will rise by 5.4% in 2021, more than making up for this year’s loss. That also remains to be seen.

I would be remiss not to point out that the IMF does not have the greatest track record when it comes to forecasting US economic growth. However, in this case, its estimates for 2020 and 2021 are in-line with most other forecasts I read.

The bottom line is, most forecasters believe the US economy is recovering and will stage a strong rebound between now and the end of the year, followed by a surge of over 5% in 2021. Again, both remain to be seen (meaning I have some doubts).

Fed’s Last Policy Meeting Before the Election

Next, the Federal Reserve ended its latest policy meeting yesterday, and this was the last Fed Open Market Committee (FOMC) meeting before the election. As was widely expected, the Fed made no meaningful changes to its policy of keeping short-term rates near zero. No surprise there.

The policy statement for the latest FOMC meeting did, however, reflect the Fed’s late August commitment to higher inflation, including allowing it to rise above 2%, in the months and years ahead. As I wrote on September 1, I did not consider the latest policy tweak to be a big change. I still don’t, and I continue to argue the Fed doesn’t have a lot of impact on the inflation rate in the current economic environment.

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