OECD Warns Against Ending Stimulus Despite Its Impact On Inflation

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The global economic rebound from COVID-19 will need continued government support to maintain its momentum, a Paris-based economic policy group said on Tuesday, despite fears that federal stimulus packages in the United States and elsewhere are contributing to higher inflation.

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The Organization for Economic Cooperation and Development projected that the world economy is on course to grow 5.7% in 2021, Reuters reported. That’s slightly down from earlier projections but would still represent a major improvement over last year when the global economy declined 3.4% during the worst of the COVID-19 pandemic.

The OECD also forecast that U.S. gross domestic product would expand 6% this year, Fox Business reported. That’s down nearly one percentage point from May when the group predicted GDP growth of 6.9%. The lower projection comes amid a rise in COVID-19 cases tied to the delta variant. But even 6% growth would be a big improvement over 2020’s U.S. GDP, which fell to an annualized rate of 3.5%.

The global economy is expected to rise 4.5% next year, the OECD said, up 0.1 percentage point from its earlier forecast in May.

Meanwhile, the group urged government bodies to remain flexible with financial support for their countries and advised against withdrawing stimulus programs until the short-term economic outlook becomes clearer. It also advised central banks to remain flexible about monetary policy but recommended that they offer clear guidance about when they should act to tame inflation.

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The OECD expects inflation to peak near the end of 2021 at an average of 4.5% in the Group of 20 major economies, before falling back to 3.5% by the end of 2022.

See: Petition for 4th Stimulus of $2,000 Monthly Payments Reaches 2.9 Million SignaturesFind: Next Year’s Social Security Checks Could Get Biggest COLA Bump in 13 Years

The group’s recommendation to continue government stimulus programs comes despite mounting evidence that these programs have led to higher inflation.

As GOBankingRates reported earlier this week, the U.S. has experienced higher inflation than other developed countries at the same time it has passed much bigger stimulus packages. The massive amount of stimulus money being sent to Americans — combined with pent-up demand for goods and services as COVID-19 restrictions eased — created the perfect storm for inflation, experts say.

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