Fed officials improve economic projections, leave rates unchanged

The Federal Reserve’s policymaking committee estimates that the overall economic blow of the coronavirus pandemic will be smaller than it had expected in September, according to new projections released Wednesday.

Members of the Federal Open Market Committee (FOMC), which sets Fed interest rates and other monetary policy tools, upgraded their projections of how quickly the U.S. would recover from the economic blow of the pandemic from September estimates after its final meeting of 2020.

The Fed does not consider these projections to be the official forecast of the central bank, but rather as a general sense of the FOMC’s outlook. The new projections were released alongside the FOMC’s decision to hold its baseline interest rate range at 0 to 0.25 percent, where it is projected to remain for several years.

The median estimate of FOMC members for 2020 gross domestic product (GDP) growth improved from a decline of 3.7 percent in September to a drop of 2.4 percent in December, according to the new projections. The FOMC’s median estimate of the year-end unemployment rate declined from 7.6 percent in September to 6.7 percent, which is equal to the November unemployment rate.

Federal Reserve Chairman Jerome Powell said during a Wednesday press conference following the release that while the economy has broadly improved at a faster than expected pace, U.S. households least equipped to withstand the downturn have suffered the most.

“The economic downturn has not fallen equally on all Americans, and those least able to shoulder the burden had been the hardest hit,” Powell said.

“In particular, the high level of joblessness has been especially severe for lower wage workers in the service sector, and for African Americans and Hispanics,” he added. 

Powell added that the case for a fiscal stimulus measure “is very, very strong and is widely understood,” but declined to comment on the size and scope of a potential deal in the works between Democratic and Republican negotiators.

The coronavirus relief deal is expected to include direct $600 to $700 direct stimulus payments and $300-per-week supplemental unemployment assistance, according to sources familiar with the talks.