Fed raises its economic outlook slightly, sees 4.2% growth next year and 5% unemployment rate

The Federal Reserve dialed up its economic expectations slightly for the end of this year as well as for 2021, according to the central bank’s Summary of Economic Projections released on Wednesday.

The central bank now expects real gross domestic product to fall just 2.4% in 2020, compared to a decline of 3.7% predicted in September. The Fed also upped its 2021 real GDP forecast to 4.2% from 4.0% expected previously.

Source: Federal Reserve

The Jerome Powell-led Fed estimates the unemployment rate to fall to 6.7% this year, further below the 7.6% previously predicted. The unemployment rate should fall to 5.0% in 2021, compared to the central bank’s previous estimate of 5.5%.

The Federal Open Market Committee said in its statement Wednesday that it would continue to buy at least $120 billion of bonds each month “until substantial further progress has been made toward the Committee’s maximum employment and price stability goals.”

The Fed kept its inflation estimates for 2020 unchanged at 1.2%. The FOMC now sees PCE inflation running to 1.8% next year, slightly above its previous estimate of 1.7%.

Core PCE inflation is expected to come in at 1.4% this year, down slightly from September’s projection of 1.4%. Next year, core PCE inflation is estimated to reach 1.8%, up from September’s forecast of 1.7%.

The Fed decided to keep interest rates unchanged in its December meeting after slashing them to near-zero in an emergency meeting in March due to the fast-spreading coronavirus.

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