(CNN) -- The economic recovery from COVID-19 will reaccelerate in the coming quarters, driving the unemployment rate back to a 50-year low by the end of next year, Goldman Sachs told clients on Sunday.
After slowing this summer, the US economy will get a boost from the reopening of the service sector, consumer spending and inventory restocking, the Wall Street bank said.
That's why the jobs market will likely reach maximum employment by mid-2022, boosted by "red-hot demand for workers," Goldman Sachs said. The unemployment rate is expected to slip from 4.6% today to 3.7% by mid-year and 3.5% by the end of the year.
At 3.5%, the unemployment rate would match the 50-year low hit in late 2019 and repeated in early 2020. This would mark a dramatic improvement from April 2020 when the eruption of the pandemic sent the unemployment rate skyrocketing to 14.8%.
Goldman Sachs is less optimistic about the prospects of luring Americans back into the workforce.
"While labor force participation is likely to remain below its pre-pandemic trend, this looks structural or voluntary in an environment where job opportunities are plentiful," the report said.
A record 4.4 million Americans quit their jobs in September, the Labor Department said on Friday.
Goldman Sachs also acknowledged the "inflation overshoot has been startling" and sticker shock "will get worse this winter before it gets better."
Although Goldman Sachs expects "persistent inflationary pressure" from rising wages and rent, it expects inflation will only be "moderately above" 2%. That would be in-line with the Federal Reserve's new framework for inflation, which calls for allowing prices to run a bit hot after years of subdued inflation.
That's why Goldman Sachs doesn't think the Fed will need to race to put out an inflation fire in the economy. The bank only sees two interest rate hikes per year once the Fed completes the "tapering" of its bond buying program next year.
"We expect growth and inflation to settle down by year-end without a need for aggressive monetary policy tightening," the report said.
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