Fed forecasts for 2020 and 2021 on GDP and unemployment rate improved

The December Fed meeting ended with the publication of more optimistic forecasts of GDP and unemployment in the United States in 2020 and 2021 than forecasts in September. The central bank has pledged to continue the current bond buying program until the economy fully recovers.

The US Federal Reserve meeting this week was the latest this year and widely anticipated by financial markets amid deteriorating economic and labor market performance due to the negative impact of the high incidence of COVID-19 in the country.

US retail sales fell more-than-expected in November, the US Commerce Department said Wednesday, adding to signs of a slowdown in economic recovery. The long-awaited $ 900 billion bailout bill for the Cares 2 pandemic has yet to be passed in Congress, but financial markets are hoping for it to pass before the end of the year.

Fed Chairman Jerome Powell held a press conference following the meeting on Wednesday, which positively affected such major US stock indices as the S&P 500 and Nasdaq Composite – they rose 0.18% and 0.5%, respectively.

The Federal Open Market Committee (FOMC) said the central bank will continue to buy bonds worth at least $ 120 billion each month “until significant further progress is made towards the Committee’s goals of maximum employment and price stability.”

At the same time, Powell noted that the Fed will increase asset purchases if the economic recovery slows down.

The Fed raised its forecasts for GDP (gross domestic product) for 2020, expecting a drop of just 2.4% from the 3.7% decline forecast in September and -6.5% in June. The GDP forecast for 2021 has also been raised from 4% to 4.2%.

Although the number of new jobless claims in the United States for the week ending December 5 surged sharply amid a surge in COVID cases, the Fed has improved its forecast for the unemployment rate to 6.7% this year, down from the previously forecast 7.6%. The Fed’s forecast for the US unemployment rate in 2021 foresees a drop to 5.0%, compared with a previous estimate of -5.5%.

The Fed’s committee kept its 2020 inflation forecast at 1.2%, but next year the forecast is 1.8%, slightly higher than the previous estimate of 1.7%. The long-term goal of the US Central Bank is to achieve inflation of 2% and slightly higher.

According to previous statements from the Fed, benchmark interest rates will remain at 0.25% -0% until at least 2023.

“The weakest parts of the economy are the service industries that are closely related, such as the restaurants and the tourism industry,” Powell said at a news conference. “They are not held back by financial conditions, but rather by the spread of the virus, which is now intensifying throughout the country.”

According to the latest data from Johns Hopkins University, the number of deaths from COVID-19 in the United States was 307.5 thousand.

However, the start of vaccine introduction this week added hopes for the US economy to emerge from the recession that began in March. Marketinfo.pro wrote more about the start of vaccination in the country in the article “Pfizer COVID-19 vaccines will begin to be applied in the United States on Monday”.

In a conversation with reporters, Powell said the central bank hopes that by mid-2021, the US can move closer to gaining massive immunity from coronavirus and see a surge in economic activity.

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