US Federal Bank forecasts better economic outlook for 2021 but warns of uncertainties

The United States Federal Reserve Bank has forecasted a better economic outlook for America next year despite the COVID-19-induced slowdown. Federal Reserve Chair Jerome Powell on Wednesday said that the American economy is on a path of recovery since September but also warned that the coming months are going to be challenging. This comes as the United States began the COVID-19 vaccination programme earlier this week, which is expected to provide a much-needed boost to the American economy. 

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"Economic activity has continued to recover from its depressed second-quarter level. The substantial reopening of the economy led to a rapid rebound in activity, and real GDP rose at an annual rate of 33 percent in the third quarter. As we have emphasized throughout the pandemic, the outlook for the economy is extraordinarily uncertain and will depend in large part on the course of the virus. Recent news on vaccines has been very positive," Powell said at a press conference held on December 16. 

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'Services sector remains down'

Powell said that household spending on goods has been strong and has moved above its pre-pandemic level. In contrast, spending on services remains low, especially in sectors that typically require people to gather closely, including travel and hospitality. Powell said that the Housing market has recovered, significantly because of the law-mortgage interest rates. 

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The Federal Reserve has forecasted a 4.2 percent GDP growth in 2021, which is a massive change from -2.4 percent earlier this year. The unemployment rate is expected to fall from 6.7 percent to 5 percent, which again is a huge improvement given the record amount of jobs lost during the pandemic. Powell has said that half of the 22 million jobs lost in March and April have been regained. The unemployment rate is expected to fall below 4 percent by 2023. 

Meanwhile, the inflation rate is expected to rise in the coming years from 1.2 percent in 2020 to 2 percent by 2023. "Our ability to achieve maximum employment in the years ahead depends importantly on having longer-term inflation expectations well anchored at 2 percent," Powell said. 

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