- Federal Reserve economic projections for 2021 improve on positive vaccine news
- Fed plans to keep rates near zero and continue to buy government bonds in an effort to help stabilize the economy
- Federal Reserve Chairman Jerome Powell continues to call for a new round of stimulus
Positive developments on the creation and distribution of COVID-19 vaccines helped improve the Federal Reserve’s projections for the near future, according to data released Wednesday. However, the Fed also announced that it will be keeping its rates near zero and continue to buy government bonds until there is a “substantial” recovery in the United States economy.
The Fed’s projections are based on input from Federal Reserve Board members as well as the presidents of individual Federal Reserve Bank presidents. The median expectation was for a 2.4 percent contraction in real GDP, a significant improvement from September’s projection of a 3.7 percent contraction. The median expectation for GDP growth in 2021 was 4.2 percent, up from 4 percent in September.
Fed members and presidents expect the unemployment rate to drop from 6.7 percent to 5 percent in 2021, half a point lower than September’s projections. The Fed projects that unemployment will fall to 4.2 percent in 2022 and 3.7 percent (0.2 points above the February 2020 level) in 2023.
Inflation is expected to remain within the traditional 2 percent ceiling in the near term, but reach this level in 2023. The Fed adjusted its approach toward inflation in response to the COVID-19 pandemic, saying it would allow inflation to moderately exceed the 2 percent target in order to preserve low rates.
The Fed also emphasized Wednesday that it will keep its short-term benchmark rate near zero until at least 2023 and will continue purchasing $120 billion a month in government-backed debt, both strategies aimed at restoring full employment and calming the markets.
Federal Reserve Chairman Jerome Powell reiterated his call for new economic stimulus on Wednesday amid a third wave of COVID-19 infections and ongoing signals of a slowing economic recovery, including slower hiring, higher jobless claims, and lower than anticipated retail spending. Partisan efforts in Congress have hindered attempts at further stimulus since the summer, although lawmakers are currently working on a proposed bipartisan deal.
