Federal Reserve Raises Its Growth Predictions As Chair Powell Warns Of ‘Very Challenging’ Months Ahead

Topline

As the first coronavirus vaccines are delivered to states this week, the Federal Reserve on Wednesday issued slightly more optimistic projections for the economy but continued to emphasize that the outlook in the short term is highly dependent on the course of the worsening coronavirus pandemic. 

Key Facts

The leaders of the central bank predict that the unemployment rate (which now sits at 6.7%, down from an eye-watering high of 14.7% in April) will fall to 5% by the end of 2021, down from the 5.5% they predicted a few months ago.

The Fed also predicts that gross domestic product will fall at a rate of 2.4% in 2020, up from a more pessimistic prediction of -3.4% in September, then grow at 4.2% by the end of next year.

Despite those optimistic predictions, Federal Reserve Chair Jerome Powell reiterated Wednesday that the outlook for the economy remains “extraordinarily uncertain and will depend in large part on the course of the virus” over the next several months.  

Powell also noted—as he has before—that more economic support from Congress may be necessary to get the economy back on track to where it was before the virus. 

The central bank did not raise interest rates, which it slashed to near-zero levels in March to prop up the financial system, and Powell reiterated the Fed’s commitment to using all its available powers to support the U.S. economy during the coronavirus crisis.

Crucial Quote

“The ongoing surge in new Covid-19 cases both here in the United States and abroad is particularly concerning,” Powell said during a press briefing Wednesday, “and the next few months are likely to be very challenging.” 

Key Background

Lawmakers on Capitol Hill are racing to finalize a $900 billion federal stimulus package to deliver more aid to Americans before the holidays. The package under consideration will likely include another round of direct payments (albeit at a reduced level from the $1,200 stimulus checks authorized by the CARES Act), $300 weekly enhanced unemployment benefits, and another round of funding for the Paycheck Protection Program, which provided forgivable loans to small businesses struggling during the pandemic. 

Further Reading

Report: Relief Deal Will Include Stimulus Checks, Exclude State Aid And Liability Protections (Forbes)

Senate Leader McConnell Vows ‘We’re Not Leaving’ Without Covid-19 Relief As Rank And File Stews Over Lack Of Stimulus Checks (Forbes)

Pelosi, McConnell, Schumer, And McCarthy Set For Pivotal Stimulus Meeting Ahead Of Friday Shutdown Deadline (Forbes)

Warren Buffett On Stimulus Gridlock: ‘Just Renew The PPP And Get Us To The End Of The Tunnel’ (Forbes)

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