The Federal Reserve on Wednesday projected the U.S. economy will grow 6.5 percent this year, the fastest pace in four decades, fueled by growing vaccination rates and nearly $2 trillion in new federal spending.
Central bank officials upgraded their growth forecast from their 4.2 percent estimate in December, saying they now expect the unemployment rate to drop to 4.5 percent by the end of 2021.
Fed officials are also predicting a short-term burst in inflation this year, but only slightly above the central bank’s long-run goal of 2 percent, estimating that it could rise to 2.4 percent.
Despite the surge in growth, the Fed isn’t in any hurry to raise borrowing costs, projecting no interest rate increases through 2023 — a stance that sent the stock market soaring. Fed Chair Jerome Powell has rejected fears that more direct checks to Americans from the federal government will lead to troubling price spikes, doubling down on the Fed’s pledge to keep interest rates low to allow as many people back into the labor force as possible.
Inflation has remained muted for years, despite warnings that it was bound to accelerate because of the Fed’s low-rate policy.
Even as Fed officials expect unemployment to drop to 3.5 percent in 2023, they still expect inflation to hover around 2 percent for the next couple of years.
A few policymakers do think the central bank could hike rates as early as next year, but they’re the minority on the 18-member rate-setting committee.
View original post