WASHINGTON: The US economy will grow on the order of 20 per cent in the third and fourth quarters, a top White House economic adviser predicted on Sunday (Jul 26), despite reopening setbacks linked to a coronavirus resurgence.
“I don’t deny that some of these hotspot states moderate that recovery, but on the whole the picture is very positive,” Larry Kudlow said on CNN’s “State of the Union.”
“And I still think the V-shaped recovery is in place, and I still think there’s going to be a 20 percent growth rate in the third and fourth quarters,” he said.
The administration on Thursday is due to make public its first estimate of GDP in the second quarter, a period that saw the economy shut down in an attempt to stop the spread of COVID-19.
The International Monetary Fund has estimated that during the April through June period, US GDP contracted 37 per cent compared to the same period last year.
Kudlow acknowledged that the pace of the recovery was subject to debate, but he pointed to economic indicators that he said signalled a takeoff, citing in particular a jump in retail sales in May and June as well as a strong rebound in the automotive sector.
The Federal Reserve has been more cautious about the prospects of a comeback in the second half of the year.
For 2020, it expects the GDP to contract 6.5 per cent.
The United States entered into recession in February 2020. To soften the shock of the health crisis, the Congress at the end of March approved a massive US$2.2 trillion relief package called the Cares Act.
It included direct checks to Americans and US$349 billion in funds to support small and medium-sized businesses.
A second relief package totaling nearly US$500 million was completed in April.
Unemployment benefits were increased by US$600 a week as part of the effort to protect individuals during the crisis. But that measure expires on Friday.
For weeks, Democrats and Republicans have been debating a new plan to extend unemployment benefits, so far without agreement.
Treasury Secretary Steven Mnuchin insisted on “Fox News Sunday,” however, that unemployment payments should be reduced from current levels.
“The fair thing is to replace wages, and it just wouldn’t be fair to use taxpayer dollars to pay people more to sit home than they would get working,” Mnuchin said.
The administration proposes setting unemployment compensation at 70 per cent of a recipient’s last paycheck.
Despite the differences, Mnuchin said he was optimistic about the second relief package, adding that Senate Republicans would be unveiling their bill on Monday.
But with just 100 days to the US presidential elections, and President Donald Trump down in the polls, the pressure is on.
Mnuchin stressed that the administration’s objective is to help the most vulnerable small businesses as well as people who are out of work.
Asked why the White House had quickly backed off Trump’s recent call for a cut in payroll taxes, which fund health and pension programs for the elderly, Mnuchin said there was no bipartisan support for it in Congress.
Instead, the administration is opting for direct payments which, he said, “are a much quicker way of effectively giving everybody a tax cut, and it’s much quicker than the payroll tax cut.”