Think tank PIIE revises down forecast for U.S. economic growth to 5.7 pct in 2021

A customer selects goods at a supermarket in New York, the United States, Aug. 11, 2021. (Xinhua/Wang Ying)

U.S. core inflation is projected to diminish to 2.5 percent by the end of next year, after reaching nearly 4 percent at the end of this year, PIIE Senior Fellow Karen Dynan said.

WASHINGTON, Oct. 5 (Xinhua) -- The U.S. gross domestic product (GDP) is on track to grow by 5.7 percent this year, lower than the previous projection of 6 percent, according to the Peterson Institute for International Economics (PIIE)'s semiannual Global Economic Prospects released Tuesday.

U.S. core inflation is projected to diminish to 2.5 percent by the end of next year, after reaching nearly 4 percent at the end of this year, PIIE Senior Fellow Karen Dynan, former assistant secretary for economy policy and chief economist at the U.S. Treasury Department, told reporters at a virtual briefing, noting that "temporary factors" are going to recede slowly.

PIIE President Adam Posen, meanwhile, said he is expecting three quarters of percent higher inflation than Dynan's projection, forecasting core personal consumption expenditures (PCE) of 3.25 percent for 2022.

"My difference with her is in interpretation of the labor market that I think the structural changes are going to be more disruptive," Posen said, while adding that there are "big bands of uncertainty" around the projections.

The U.S. unemployment rate is expected to decline to 4.8 percent in the fourth quarter of 2021 and end 2022 at 4 percent, according to Dynan.

Patrons dine at a restaurant in Navy Yard neighborhood in Washington D.C., the United States on Aug. 31, 2021. (Photo by Ting Shen/Xinhua)

Data from the Labor Department showed that U.S. employers added fewer-than-expected 235,000 jobs in August, indicating a marked slowdown in job growth amid a Delta variant-fueled COVID-19 surge, with unemployment rate falling slightly by 0.2 percentage point to 5.2 percent.

In her latest forecast, Dynan pointed to five key economic factors that are shaping the outlook in the United States: ample household financial resources that will keep consumer demand high; a gradual retreat of supply chain problems and bottlenecks; a slow return of working-age individuals to the labor force; partial offset of waning stimulus by new fiscal measures; a slightly earlier tightening of monetary policy than what the Federal Reserve currently expects.

She noted that she worries about any kind of event that could rock financial markets and cause asset prices to decline sharply, such as the debt ceiling crisis.

"I think the biggest kind of concern along those lines is just that the Fed will need to move more aggressively and they'll have to pivot faster than they currently think that they'll need to pivot. And that could really kind of upset financial markets," Dynan said.