US Economic Outlook for 2020 and Beyond

Experts Forecast a U-Shaped Recession

A store owner looks over his sales numbers from the previous quarter.

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The U.S. economy is projected to improve the second half of 2020 after the onset of the coronavirus pandemic in March, resulting in a U-shaped recession marked by a relatively sharp decline and recovery.

The positive outlook is based on experts' review of the key economic indicators, including gross domestic product (GDP), unemployment, and inflation. Analysts also review interest rates, oil and gas prices, jobs, and the impact of climate change.

The most critical economic indicator is GDP, which measures the nation's production of goods and services.

What's the U.S. Economy Like Right Now?

The second quarter (Q2) of 2020 was worse than the first, which endured the COVID-19 pandemic. Growth declined by 5.0% in the first quarter, signaling the onset of the 2020 recession. In Q2, the full effect of the recession commenced and the economy contracted 31.4%. The Congressional Budget Office (CBO) predicts the third quarter will improve, but not enough to make up for earlier losses. The economy won't return to its pre-pandemic level until 2022 under the current tax and spending laws, according to the CBO.

In April, retail sales were down 14.7% as governors closed nonessential businesses. The number of unemployed shot up to 23 million amid companies furloughing workers. 

Economic Growth

According to the most recent forecast released at the Federal Open Market Committee (FOMC) meeting on Sept. 16, 2020, U.S. GDP growth is expected to contract by 3.7% in 2020. It may rebound up to a 4.0% growth rate in 2021. Growth could slow to 3.0% in 2022, and 2.5% in 2023.


The unemployment rate is expected to average 7.6% in 2020. It will fall to 5.5% in 2021, 4.6% in 2022, and 4.0% in 2023. The rate peaked at 14.7% in April 2020 as workers were let go from their jobs in response to the pandemic.

The real unemployment rate includes the underemployed, the marginally attached, and discouraged workers. For that reason, it is around double the widely-reported you typically see in news articles.


The median core inflation rate is predicted to be 1.2% in 2020, 1.7% in 2021, 1.8% in 2022, and 2.0% in 2023. The Fed's target inflation rate is 2.0%. The core inflation rate strips out volatile gas and food prices. The Fed prefers to use that rate when setting monetary policy.

Interest Rates

On Sept. 16, 2020, the FOMC announced it would keep the benchmark rate at its current level until inflation reached 2.0% over a long period of time. The Fed's forecast said that wouldn't occur until at least 2023. 

In March 2020, the FOMC held an emergency meeting to address the economic impact of the COVID-19 pandemic. It lowered the fed funds rate to a range between 0.0% and 0.25%.

The fed funds rate controls short-term interest rates. These include banks' prime rate, the Libor, most adjustable-rate loans, and credit card rates.

The Fed is also working on keeping long-term rates low. It restarted its quantitative easing (QE) program. In March, the Federal Reserve announced it would purchase $500 billion in U.S. Treasurys and $200 billion in mortgage-backed securities. It soon expanded QE purchases to an unlimited amount. By June 2020, its balance sheet had grown to a record of $7.2 trillion. 

By buying bank securities, the Fed reduces supply in the Treasurys market. That increases the prices and lowers the return, or yield, on these long-term notes. Those yields set the benchmark for long-term fixed-rate mortgages and corporate bonds.

Treasury yields also depend on the demand for the dollar. Demand is high, so that also puts downward pressure on yields. Once the global economy recovers, investors may demand less of this ultra-safe investment, increasing yields and interest rates.

Oil and Gas Prices

The U.S. Energy Information Administration (EIA) provides an outlook on oil and gas prices from 2020 to 2050. It predicts crude oil prices will average $42/b in the fourth quarter of 2020 and $47/b in 2021 for Brent global and $45/b for West Texas Crude in 2021.

West Texas Intermediate (WTI) is the benchmark for U.S. oil prices. North Sea Brent oil comes from Northwest Europe and is the benchmark for global oil prices.

The EIA's energy outlook through 2050 predicts rising oil prices. By 2025, the average Brent oil price could increase to $183/b in 2050, adjusted for inflation. By then, the cheap sources of oil will have been exhausted, making crude oil production more expensive. This forecast does not take into account government efforts to increase renewable energy production to stop global warming. It also does not factor in the pandemic's impact on oil prices.


The Bureau of Labor Statistics (BLS) publishes an occupational outlook each year. It goes into great detail about each industry and occupation. Overall, the BLS expects total employment to increase by 6 million jobs between 2019 and 2029. 

Health care occupations are projected to 3.1 million jobs. Computer and math occupations, and those based on alternative energy production, will also grow rapidly. For example, the BLS predicts jobs for wind turbine service technicians will increase by 60.7% from 2019 to 2029.

Manufacturing will continue shedding jobs. Retail sales are also expected to lose jobs, as e-commerce continues to grow. That same shift could increase jobs in transportation and warehousing. Other declines will occur in the postal service, agriculture, and some information-related industries.

Climate Change

The Federal Reserve is concerned about how climate change will affect the economy. Research from the Richmond Fed estimated that climate change could reduce the annual GDP growth rate by up to one-third if the country continues to produce emissions at a high rate.

In 2020, the U.S. has experienced damage from both hurricanes and wildfires, as it has in past years.

The Fed is also requiring banks to plan for the economic impact of increased extreme weather. For example, it is asking Florida banks to have risk management plans for hurricanes.

Global damage from natural disasters associated with climate change, such as hurricanes, floods, and wildfires, was $150 billion in 2019, which was down from $186 billion in 2018.

Insurance companies paid out $52 billion in 2019 damage claims and $86 billion in 2018. These have become worse and more frequent due to global warming. There were 820 natural disasters in 2019, compared to less than 600 a year between 1980 and 2006.

Article Sources

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  2. Congressional Budget Office. "An Update to the Economic Outlook: 2020 to 2030." Accessed Oct. 12, 2020.

  3. Bureau of Labor Statistics. "Employment Situation Summary," Table A. Accessed Oct. 12, 2020.

  4. Board of Governors of the Federal Reserve System. “Table 1. Economic Projections of Federal Reserve Board Members and Federal Reserve Bank Presidents, Under Their Individual Assumptions of Projected Appropriate Monetary Policy, Sept. 2020.” Accessed Oct. 12, 2020.

  5. U.S. Bureau of Labor Statistics. "Labor Force Statistics from the Current Population Survey." Accessed Oct. 12, 2020.

  6. Board of Governors of the Federal Reserve System. "Federal Reserve Press Release, Sept. 16, 2020." Accessed Oct. 12, 2020.

  7. Board of Governors of the Federal Reserve System. "Federal Reserves Issues FOMC Statement, March 15, 2020." Accessed Oct. 12, 2020.

  8. Federal Reserve Board. "Credit and Liquidity Programs and the Balance Sheet." Accessed Oct. 12, 2020.

  9. Federal Reserve Board. "Federal Reserve Announces Extensive New Measures to Support the Economy." Accessed Oct. 12,

  10. U.S. Energy Information Administration. "Short-Term Energy Outlook." Accessed Oct. 12, 2020.

  11. U.S. Energy Information Administration. “Annual Energy Outlook 2020,” Page 6. Accessed Oct. 12, 2020.

  12. Bureau of Labor Statistics. “Projections Overview and Highlights, 2019 to 2029.” Accessed Oct. 12, 2020.

  13. Federal Reserve Bank of Richmond. "The Impact of Higher Temperatures on Economic Growth," Page 4. Accessed Oct. 12, 2020.

  14. Insurance Information Institute. “Facts and Statistics: Global Catastrophes.” Accessed Oct. 12, 2020.