The U.S. Capitol building after a rainstorm on Capitol Hill in Washington, December 4, 2020.

Tom Brenner | Reuters

US economic growth will recover “quickly” and the labor market will return to full strength faster than expected thanks to the introduction of vaccines and a flurry of laws passed in 2020. This emerges from a government forecast published on Monday.

Gross domestic product, or GDP, is expected to hit its previous high in mid-2021, and the workforce is expected to return to pre-pandemic levels in 2022, the impartial budget bureau told Congress.

Importantly, the CBO said its rosier projections are not taking any fresh impetus, including President Joe Biden’s $ 1.9 trillion stimulus plan.

Here’s what the CBO sees for the US economy:

  • Real GDP is expected to grow by 3.7% in 2021
  • GDP growth is expected to average 2.6% over the next five years
  • The unemployment rate is expected to fall to 5.3% in 2021 and to 4% between 2024 and 2025
  • Inflation is expected to rise to 2% after 2023
  • The Federal Reserve will begin raising interest rates in mid-2024
  • Improves the economic outlook by 2025

These projections are a stronger outlook than the Budget Office’s previous forecast for summer 2020, when the CBO said it expects the coronavirus to consume about $ 7.9 trillion in economic activity over the next more than ten years.

The CBO said they had updated their estimates “because the downturn was not as severe as expected and because the first phase of the recovery was earlier and stronger than expected.” CBO officials added that while companies were more able to adapt to government-imposed restrictions, certain industries – like hospitality and hospitality – continue to struggle.

Regardless, the rapid expansion of the CBO projects for the next five years is expected to slow over the next five years amid price spikes and more normal levels of long-term consumer spending.

Between 2026 and 2031, the CBO expects real GDP growth of around 1.6% a year, and the Fed is keeping inflation above its 2% target.

The bureau also issued an analysis of the latest $ 900 billion stimulus package passed by Congress in December. CBO estimates that the pandemic-related provisions in this legislation will increase the deficit by $ 774 billion in fiscal 2021 and by $ 98 billion in 2022.

These provisions will increase real GDP by an average of 1.5% in the calendar years 2021 and 2022, according to estimates by the CBO.

The CBO’s outlook comes at a precarious time for the U.S. economy as the coronavirus causes many states to impose business closings and other socially distant measures to slow the spread of the disease.

Economists say the economy suffered a brief but severe recession in 2020 as the unemployment rate rose to 14.8% in April and growth declined 31.4% in the second quarter. Covid-19 has killed more than 440,000 Americans, according to Johns Hopkins University.

While the economy has come a long way since then, both Treasury Secretary Janet Yellen and Fed Chairman Jerome Powell have warned in recent months that Congress may need to provide additional incentives to support households and businesses until the Covid-19 vaccine is more widely available.

According to the latest reading, the US employment rate was 6.7% in December; The Department of Labor is expected to release the next look at the employment situation in the US on Friday.

Biden has been campaigning for another round of incentives for months, on top of the $ 2.2 trillion CARES Act Congress passed in March last year and the $ 900 billion package passed in December.

Earlier this month, the new administration launched a $ 1.9 trillion plan that includes $ 1,400 in direct payments, $ 400 weekly unemployment benefits through September, and an increase in the federal minimum wage to $ 15. Includes dollars per hour.

Moderate Republicans in the Senate as well as the conservative Democratic Senator Joe Manchin of West Virginia have opposed the high price of Biden’s plan. Ten Republican senators tabled a $ 600 billion counteroffer to the government on Sunday.