Fed adjusts its U.S. economic outlook for 2021 to 4.2% from 4.0%

Fed adjusts its U.S. economic outlook for 2021 to 4.2% from 4.0%
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The Federal Reserve has increased its U.S. economic outlook to 4.2% from 4.0% for 2021, based on its Summary of Economic Projections.

The Fed expects the real gross domestic product to drop just 2.4% in 2020, compared to a fall of 3.7% forecast in September. The Fed also adjusted its 2021 real GDP forecast to 4.2% from 4.0% predicted previously.

The Jerome Powell-led Fed sees the unemployment rate declining to 6.7% this year, further below the 7.6% previously predicted. The unemployment rate could drop to 5.0% in 2021, compared to the central bank’s previous estimate of 5.5%.

The Federal Open Market Committee announced that it would purchase at least $120 billion of bonds each month “until substantial further progress has been made toward the Committee’s maximum employment and price stability goals.”

The Fed stuck to its inflation estimates for 2020 unmoved at 1.2%. The FOMC now predicts PCE inflation going to 1.8% next year, slightly above its previous estimate of 1.7%.

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Core PCE inflation could arrive at 1.4% this year, down slightly from September’s prediction of 1.4%. Next year, core PCE inflation is could reach 1.8%, up from September’s prediction of 1.7%.

According to the Fed, the predicted interest rates remain unchanged in its December meeting after cutting them to near-zero in an emergency meeting in March due to the fast-spreading coronavirus.

U.S. economic recovery

In May, Jerome Powell, chair of the Federal Reserve, said that a full U.S. economic recovery will not happen until there is a coronavirus vaccine.

“In the long run and even in the medium run, you wouldn’t want to bet against the American economy. The American economy will recover,” Powell said on CBS’ “60 Minutes.”

Powell added that the US economic recovery also depends on how Americans perceive their safety.

“Assuming there’s not a second wave of the coronavirus, I think you’ll see the economy recover steadily through the second half of the year,” the Federal Reserve chairman said.

However, Powell noted that “for the economy to fully recover … that may have to await the arrival of a vaccine.”

The Federal Reserve implemented a series of programs to keep markets running properly. The Fed also worked with the Treasury Department on different lending programs to help businesses and individuals affected by the coronavirus pandemic.

Moreover, the Fed is purchasing corporate and municipal bonds. These steps came as the unemployment crisis in the US worsens. The US now has a record of 36.5 million unemployment claims. The unemployment rate also soared to 14.7%.

“This is a time of great suffering and difficulty and it’s come on so quickly and with such force that you really can’t put into words the pain people are feeling and the uncertainty they are realizing,” Powell said.

In a separate interview, former National Economic Council Director Gary Cohn agreed with Powell’s view on the importance of a coronavirus vaccine. Cohn also noted the need to keep the economy running.

“If we really want to get the people back to work that Chairman Powell was talking about, we need to reopen the economy,” Cohn said.

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