Today, the U.S. Department of the Treasury’s Office Economic Policy released an analysis showing that the United States has done remarkably well in the recovery from the pandemic recession, driven by President Biden’s policy response. Under the Biden-Harris Administration, the United States has had the strongest growth and employment creation of any advanced country, brought inflation back down, and achieved a soft landing, defying many forecasts and predictions. This all happened amid the fairest recovery on record, as rural communities, households of color, and historically overlooked places have seen significant gains.
This analysis comes ahead of Secretary Yellen’s remarks to the New York Association for Business Economics (NYABE) on January 15, where she’ll reflect on her tenure as Secretary of the Treasury, the Biden-Harris Administration’s economic agenda, and the historic economic recovery from the pandemic.
Highlights from the analysis:
- The U.S. economy outperformed expectations formed at the height of the pandemic, and throughout the recovery. In October 2020, forecasters expected the large shock to the economy to have lingering effects: the unemployment rate was expected to remain close to 6 percent and GDP expected to languish more than 4 percent below its prior trend at the end of 2021. Instead, the unemployment rate fell to 3.9 percent by December 2021, and real GDP growth was robust, reaching its pre-pandemic trend by the fourth quarter of that year. Furthermore, the latest data suggest that inflation is stabilizing close to its pre-pandemic rate and that the unemployment rate remains historically low-it appears that the U.S. economy achieved a soft landing.
- Pursuing macroeconomic policies that would have lessened inflation early in the pandemic would have come with major downside risks to the economy. In short, lower inflation would have come with a tradeoff-lower economic growth and employment-which means higher unemployment, lower wages, and reduced well-being. Using empirical estimates from two representative models of the Phillips Curve, Treasury found that the unemployment rate would have needed to rise to 10 to 14 percent, on average, throughout 2021 and 2022 to keep inflation at 2 percent. This equates to an additional 9 to 15 million people out of work during those years. That implies significant additional hardships on the affected families, and corresponds to a much weaker economy overall, with much weaker household balance sheets, wages, business sales, and stock prices.
- The focus of macroeconomic policy should be on boosting productivity growth, spurring innovation, increasing the amount of capital deployed toward growing our economy, and investing in our workforce. With unemployment low and inflation almost back to target, it is time for policymakers to double down on supply-side investments like those in the Bipartisan Infrastructure Law, the CHIPS and Science Act, and the Inflation Reduction Act. The administration’s novel economic policymaking toolkit will serve as guidance to future leaders who seek to expand the supply-side of the economy in an effective and equitable way.