Us Economy To Grow Faster Than Forecast, Says Federal Reserve System

The US financial institution expects much stronger growth this year than previously forecast, as vaccination rates rise and government relief funds start flowing into the economy.

The Federal Reserve forecast average growth of 6.5% this year – up from 4.2% it predicted in December.

The outlook for recovery within the jobs markets has also brightened, the Fed said.

Despite the upgrade, officials did not move to raise interest rates.

And most members expect to stay borrowing costs near zero until after 2023, consistent with the projections released by the Fed after its regular meeting.

Federal Reserve Chair Jerome Powell said the bank wanted to ascertain proof of a more complete recovery before altering its policies, which are focused on stimulating economic activity.

Millions of people remain out of labor and therefore the parts of the economy most suffering from the pandemic – like leisure and hospitality – remain weak, he said. The damage has disproportionately affected minority and low-wage workers, who are often the last to profit from an economic rebound, he added.

“The recovery has progressed more quickly than generally expected,” he said at a news conference after the meeting. “While we welcome these positive developments, nobody should be complacent.”

The improved outlook – a compilation of independent forecasts by the bank’s board members – includes projections that inflation could heat up later this year, reaching 2.4%, above the bank’s historic 2% target. But Mr. Powell said such a move was likely to be “transient”.

“With the Fed keen to not tighten policy until it sees inflation on target to moderately exceed its 2% goal on a sustained basis, and also emphasizing that any increase in inflation should be transitory, we expect the Fed will follow through on its commitment to not raise rates for a short time yet,” said Michael Pearce, senior US economist at Capital Economics.

“The key risk is that the increase in inflation that the majority forecasters anticipate this year proves more enduring than Fed officials currently expect.”

The economic recovery anticipated within the US is more robust than that in Europe.

But Mr. Powell said he wasn’t worried that weak growth abroad would hurt the US, the most focus of the bank. “When the US economy is robust, that strength tends to support global activity also,” he said.

“I’d like to see Europe growing faster, I’d like to see vaccination roll out going more smoothly but I do not worry an excessive amount of about us within 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.”

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