The US economic recovery is turning from 'forecast to fact' but inflation is not a concern, Goldman Sachs says

• Goldman said the strong US economic recovery is turning "from forecast to fact" as hiring picks up.
• Its chief economist said the economy should grow 7.2% in 2021 after contracting 3.5% in 2020.
• Yet Goldman said it is not overly worried about inflation, because unemployment should weigh on prices.

The jump in employment in March shows that the rapid US economic recovery is "turning from forecast to fact," Goldman Sachs has said.

Goldman's chief economist, Jan Hatzius, said that despite the predicted 7.2% jump in US GDP in 2021, inflation was unlikely to be a problem as the economy would stay "well below" full employment.

The US economy added 916,000 nonfarm payroll jobs in March, data showed on Friday - far above economists' expectations of 660,000. Hatzius said in a note on Monday evening that the data "confirms that sharp acceleration is turning from forecast to fact."

He said Goldman expects the US economy to grow rapidly in the first half of this year, thanks in large part to President Joe Biden's $1.9 trillion stimulus package.

"We expect real GDP growth to climb from 7.5% in Q1 to 10.5% in Q2 on the back of the recent $1,400 tax rebates as well as the ongoing reopening of the most covid-sensitive sectors," Hatzius wrote.

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Goldman predicts the economy will grow 7.2% in 2021, well above the consensus estimate of 5.7%, after shrinking 3.5% in 2020. It then expects growth of 4.9% in 2022.

Yet Goldman's chief economist said the bank is less worried than some others about "overheating" in the economy - that is, dangerous inflation. "Our estimates show that the various growth boosts - from reopening, fiscal easing, and financial conditions - should only push output and employment modestly beyond full capacity."

Goldman has downgraded its forecast for "core personal consumption expenditures inflation" to peak at 2.3% year-on-year in April, up from 1.4% in February.

Stronger growth expectations have prompted concerns among some investors that inflation could start to rise sharply, potentially causing the Federal Reserve to cut back on support for the economy sooner than expected.

Yet Goldman predicted that underlying US inflation would remain "well below the Fed's 2% target, consistent with an economy that remains well below full employment."

"All this has increased our confidence that Fed officials will be able to stay the course in exiting only very gradually from their highly accommodative stance," Hatzius wrote.