Rapid Thaw

Over the past month, the expectations of growth in the year ahead have surged, with fixed income markets repricing and investors shifting allocations in anticipation of growth. Though the movements can feel disconcerting, we see them as encouraging signals that the economy holds a great deal of promise for recovery.

The key risk to the outlook remains a COVID resurgence. The virus is mutating, but thus far, the new variants haven’t been overly threatening. Rapid vaccination is a driver of the currently well-controlled case rate and falling mortality, which we expect to continue. A full year into the COVID shock, we welcome reasons to be optimistic.

USEO - Chart 1 - 03/10/21

Influences on the Forecast

    • The Biden administration has nearly passed its first significant policy, the $1.9 trillion American Rescue Plan. The package reflects the recent conventional wisdom that doing too much is preferable to a response that falls short, and modifications from the original proposal were minor. Negotiators deferred the $15 minimum wage proposal, pared back income eligibility for $1,400 economic impact payments, and lowered the federal unemployment insurance supplement to $300 from $400.
      • With ratification this week, households have avoided a fiscal cliff of a loss of unemployment support. Small businesses and local government bodies will also gain from the package.
      • The Department of the Treasury has proven capable of distributing funds quickly, which will lift income in March and consumption in the months ahead.
      • The bill may prove to be too front-loaded. Most of the supports included in the legislation expire in September. If support is still needed later in the year, fiscal capacity and political will may be depleted.