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Biden's Budget Review Ups 2021 Inflation Forecast to 4.8% But Sticks to Transitory

The administration's forecast is inflation will rise in 2021 but long-term it sticks with the Fed that inflation is transitory.
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Inflation Rising Interest Rates Falling


The rate of inflation over the first two quarters of 2021 has been elevated amid temporary pandemic-related factors. Consistent with external forecasters, MSR projections include (fourth-quarter-over-fourth-quarter) CPI-U inflation of 4.8 percent in 2021 and 2.5 percent in 2022, before reaching a long-run rate of 2.3 percent over the remainder of the Budget window.

These forecasts are all consistent with the view that pandemic-related inflationary pressures will be temporary as supply constraints ease and that long-run inflation will continue to be anchored within the Federal Reserve’s stated policy target of 2.0 percent PCE inflation on average.


The unemployment rate is expected to reach 4.7 percent by the end of 2021, and to decline further to 4.0 percent by the end of 2022. Unemployment is then projected to reach a long-run level starting in 2023. These projections are similar to those underlying the 2022 Budget.

Real Gross Domestic Product

Thanks in part to the American Rescue Plan and the Administration’s whole-of-government response to the pandemic, real GDP growth is expected to be 7.1 percent (fourth-quarter-over-fourth-quarter) in 2021 and 3.3 percent in 2022. These elevated growth rates are expected to taper during the medium-term of the forecast as GDP growth is projected to average 1.9 percent between 2024-2027, rising to 2.3 percent in the long term (2030-2031), in part reflecting the effects of the President’s policies.

Interest Rates

Following the June Federal Open Market Committee (FOMC) meeting, the Federal Reserve suggested that the median FOMC member now sees 2023 rather than 2024 as the year during which their policy interest rate will start to rise. The MSR projections take into account this shift and project somewhat higher interest rates than the Budget beginning in 2023.

The Administration’s forecast is slightly higher than the Blue Chip consensus’s and broadly similar to the CBO’s. All three forecasts – MSR, Blue Chip, and CBO – project the 91-day Treasury bill rate to begin rising most significantly in 2023 and into 2024, consistent with the current median view of the FOMC (as of June) regarding their policy rate.


The Administration’s MSR forecast is based on information available at the beginning of July, and it also assumes that the President’s proposed legislative agenda will be enacted.

Projecting Seemingly Forever Into the Future

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For 2031, the MSR forecasts 2.3 percent growth, compared with the Blue Chip consensus forecast of 1.9 percent and the CBO forecast of 1.7 percent.

What About Recessions?

The implied assumption in all these projections is there will not be another recession until at least 2031.

This is economic nonsense and why it is absurd to place any stock in projections.

Moreover, if Biden's proposed legislative agenda actually passes, the result will be lower growth and higher inflation.

I fail to see how a tax on energy imports and demands for 80% clean energy coupled with tax hikes can be anything but stagflationary.

For discussion of the stagflation possibility, please see The Stagflation Threat is Very Real but Congress Holds the Key

For discussion of rate hikes, please see On Rate Hikes, Powell Makes Like Sergeant Schultz, Instead Recaps His Case on Inflation

Meanwhile, Biden gives himself a big pat on the back for legislation that has not passed and hopefully never will.

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