Economy Strong as 2023 Ended

This outcome defies the predictions by a few prominent economists when inflation rose sharply in 2021 that very large increases in unemployment would be needed to bring it down.2 It also calls into question claims that the demand stimulus from the American Rescue Plan Act enacted in May 2021, which successfully supported the recovery and relieved hardship,3 was the major source of the inflation. [...] These demand-focused arguments ignore the importance of both the tightening of supply restrictions in raising inflation in 2021 and 2022 and of their later loosening in allowing inflation to come down without depressing economic activity and increasing unemployment. [...] 3 The bipartisan relief and recovery measures enacted in the spring of 2020 helped stop an economic free-fall and contributed to the rapid partial recovery in the first half of the year. [...] The Rise and Fall of High Inflation Following ARPA’s enactment, CBO published economic projections in July 2021 incorporating the effects of the relief measures enacted to date, the diminishing constraint on economic activity as social distancing declined, and greater consumer spending.14 These projections foreshadowed the strong economic growth and solid job gains described above, but they greatl. [...] Housing accounts for a little over a third of the market value of the goods and services in the CPI market basket and about half that in the PCE market basket.