Federal Reserve officials expect the recovery from the coronavirus recession to speed up as President Biden’s $1.9 trillion relief bill begins rippling through the economy and the U.S. accelerates the pace of coronavirus vaccinations.
Members of the Federal Open Market Committee (FOMC), which sets Fed interest rates and other monetary policy tools, upgraded their estimates of unemployment and economic growth in new projections released Wednesday.
The median estimate of FOMC members for 2021 gross domestic product (GDP) growth improved to 6.5 percent this month from the 4.2 percent median increase projected in the Fed’s December release.
The FOMC’s median estimate of the 2021 year-end unemployment rate declined from 5 percent in December to 4.5 percent this month. Fed officials did not see the U.S. returning to its pre-pandemic jobless rate of 3.5 percent until 2023.
The Fed does not consider these estimates to be the official forecast of the central bank, but rather a guide to where FOMC members see the economy going.
The new projections, however, are the latest sign of growing optimism among economists in the outlook for the U.S. more than a year after the pandemic began ravaging the global economy.
After suffering the steepest and quickest economic downturn since the Great Depression, the U.S. is on track for a swift rebound. Economists say that the increasing number of Americans receive coronavirus vaccinations and another round of federal aid will likely help the U.S. recover its pandemic losses quicker than had initially been expected.
Despite the improved projections, the Fed is unlikely to ease up on support for the economy any time soon. The Fed, as expected, announced Wednesday it would keep its baseline interest range between 0 and 0.25 percent and would continue to purchase $120 billion in Treasury and mortgage bonds each month.
Not one of the 18 members of the FOMC expected the Fed to raise interest rates in 2021. Three expected the Fed to hike once in 2022, one official expected two hikes in 2022, and 11 FOMC members did not expect the Fed to hike rates before 2024.
Fed Chair Jerome Powell has said repeatedly this year that the bank will not raise rates until the U.S. reaches maximum employment and inflation is on track to exceed the Fed’s 2 percent annual target.
Fed officials expect inflation as measured by the personal consumption expenditures price index minus food and energy to rise to 2.2 percent this year before settling back at its target of 2 percent in 2022.
Updated at 2:21 p.m.