2021 US GDP forecast downgraded on delta variant impacts and supply chain shortages

Lingering hesitancy by consumers to spend as the delta strain of the coronavirus spreads, coupled with worsening supply shortages in certain industries, have led us to downwardly revise our forecast for GDP growth this year, from 5.7% to 5.4%, with third-quarter growth dropping all the way to below-trend 1.4%. However, progress on vaccinations and the gradual resolution of supply disruptions and labor shortages will shift growth lost in late 2021 to later years.

The forecast reflects the impact of the Infrastructure Investment and Jobs Act. The peak effect is to raise the level of real GDP by 0.5% and boost employment by 750,000 in 2025-26, after which the impacts will wane.

Near-term price and cost pressures will push CPI inflation to 4.3% this year and an upward-revised 3.0% in 2022 (from 2.3%), after which we expect inflation to subside close to the Fed's long-run 2% objective.