With the increase in the speed of vaccinations against Covid-19 and the release of a massive relief package by the government that is flowing into the economy, a much stronger growth this year for the United States economy is expected by the US central bank compared to previous forecast.
An average growth of 6.5 per cent for 2021 – compared to its December forecast of 4.2 per cent, was forecast by the US Federal Reserve. The central bank said that there is are also better indications for the outlook for recovery in the jobs markets in the country.
Officials of the Fed did not move to raise interest rates despite the upgrade.
And according to the projections released by the Fed after its regular meeting, most of its members also expected that the borrowing costs will be kept by the Fed near zero until after 2023.
Before making any changes in its current policies, which are focused on stimulating economic activity, the Fed would want to see proof of a more complete recovery of the economy, said the Federal Reserve Chair Jerome Powell.
He said that parts of the US economy such as leisure and hospitality, that have been most impacted by the Covid-19 pandemic, are still weak and there are also millions of Americans who are out of work. Minority and low-wage workers have been affected by the pandemic in a disproportionate manner even as these groups are among the last to benefit from an economic recovery, he added.
“The recovery has progressed more quickly than generally expected,” he said at a press conference after the meeting. “While we welcome these positive developments, no one should be complacent.”
The new improved forecast by the central bank was prepared from a minority and low-wage workers and included forecast for the inflation in eth country could get higher later this year and could reach as high as 2.4 per cent – which would be above the historic target of 2 per cent set by the Fed. But such a move was likely to be “transient”, Powell said.
The upward growth revision resulted in a jump in share prices on Wall Street.
“With the Fed keen not to tighten policy until it sees inflation on track to moderately exceed its 2% goal on a sustained basis, and also emphasising that any increase in inflation should be transitory, we expect the Fed will follow through on its commitment not to raise rates for a while yet,” said Michael Pearce, senior US economist at Capital Economics.
“The key risk is that the rise in inflation that most forecasters anticipate this year proves more enduring than Fed officials currently expect.”
The forecast recovery of the US economy will be bigger than the recovery predicted for Europe.
However the Fed was not worried of the US being hit by weak growth abroad, Powell said. “When the US economy is strong, that strength tends to support global activity as well,” he said.
“I’d love to see Europe growing faster, I’d love to see vaccination rollout going more smoothly but I don’t worry too much about us in the near term,” he said. “I think we’re in a good place. It’s all ahead of us but the data should get stronger fairly quickly and remain strong for some time.”
(Adapted from BBC.com)