U.S. economic growth could surpass China this year and Democrats may be better off spending stimulus money on something else, Fed’s Bullard says

Could Democrats be fighting the last war and wasting money on another $1.9 trillion economic relief package?

Perhaps, if Saint Louis Federal Reserve president James Bullard is right.

The Fed official thinks the economy is already set for a strong recovery in 2021.

Its possible U.S. economic growth could top 6% this year, he said. “There’s certainly a chance we grow faster than China in 2021,” Bullard said.

Even the first three months of this year are looking strong. Only weeks ago Wall Street economists were penciling a contraction, Bullard noted

But strong growth should really kick in as soon as April as more Americans are vaccinated, he said.

So Democrats could keep their powder dry for another day, he said.

“Democrats have the power here and can do what they want. But the trade-off would be in my mind – do they want to invest a lot in this recovery that already looks strong or do they want to save firepower to do other things that they might want to do,” Bullard said during a discussion with reporters after he spoke to the CFA Society St. Louis.

President Joe Biden and Congressional Democrats have said a Republican fiscal stimulus package of $618 billion is insufficient.

Senate Majority Leader Chuck Schumer said Democrats cannot accept a package “that is too small or too narrow to pull our country of of this emergency.”

In his talk to reporters, Bullard said the major downside risk to his forecast was the chance the vaccines might turn out not to be effective as expected against mutations of the coronavirus.

While the unemployment rate has fallen sharply to 6.7% after hitting a peak of 14.8% in April, many economists worry the 10.7 million unemployed Americans who have lost their jobs during the pandemic will have a hard time finding work again and the jobless rate may not improve much further.

But Bullard noted many of these workers believe they are on temporary layoffs. If they are called back, he thinks the unemployment rate could fall to 4.5% by the fourth quarter.

“The problem of the permanently unemployed isn’t as big as it was during the aftermath of the financial crisis,” Bullard said.

“There is still a tendency to think that this is a replay of the global financial crisis and a replay of the recovery from the global financial crisis. I don’t think its anything like that, this shock is very different.

“The idea that you’re still not going to recover three, four, or five years from now is not the right way to view what’s going on here,” he said.

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