JAKARTA (TheInsiderStories) – United States (US) economy to pass pre-pandemic peak in late 2021, regain full employment in 2023, said Joel Prakken and Chris Varvares from IHS Markit. While, minutes of Federal Reserve (Fed) showed that the policymakers agreed the current monetary policy measures were appropriate to support the economic recovery as the risks to the outlook remained tilted to the downside.
Fiscal policy measures, along with the support from monetary policy and the Fed’ liquidity and lending facilities are expected to continue supporting the second-half recovery, said the minutes. The staff assumed the enactment of some additional fiscal policy support this year. Without that additional policy action, the pace of the economic recovery would likely be slower.
According to IHS Markit, recent data imply third-quarter real GDP growth near 33 percent, stronger than anticipated previously. This encouraged us to revise up our forecast for growth in 2020 from -4.0 to -3.5 percent. However, after the third quarter they expect GDP growth to fade, as catch-up spending wanes, federal and state and local fiscal support dissipates, and stubbornly high COVID-19 infection rates leave states cautious about re-opening their economies and encourage continued caution by consumers and business independent of official containment measures.
“We project GDP to surpass its previous peak in late 2021, and the economy to regain full employment in 2023. Our forecast assumes emergency unemployment benefits of US$300 per week and another round of stimulus checks are disbursed during the fourth quarter,” said the economists.
In addition, they said, the economy faces renewed risk early in 2021 when fiscal support wanes. However, Prakken assume a vaccine becomes available in mid-2021, allowing the recovery to progress even without pandemic relief measures beyond those we assume.
While, the Fed sees the rate of real GDP growth and the pace of declines in the unemployment rate were faster over the second half of this year than in the July forecast, primarily reflecting recent better-than-expected data. In addition, the inflation forecast for the rest of the year was revised up slightly, as some recent consumer goods prices were stronger than expected.
Nevertheless, inflation was still projected to be subdued this year, reflecting substantial slack in resource utilization and the sizable declines in consumer energy prices earlier this year. Fiscal policy measures, along with the support from monetary policy and the Fed’ liquidity and lending facilities, were expected to continue supporting the second-half recovery, although the recovery was forecast to be far from complete by year-end.
The rate of real GDP growth was projected to exceed potential output growth, the unemployment rate was expected to decline considerably further, and inflation was forecast to pick back up in 2021 through 2023. With the more-accommodative monetary policy assumed in the current forecast, which reflected the recent consensus statement, inflation was projected to moderately overshoot 2 percent for some time in the years beyond 2023.
In their consideration of monetary policy at this meeting, participants reaffirmed that they were committed to using the Fed‘ full range of tools in order to support the US economy during this challenging time, thereby promoting the Committee’ statutory goals of maximum employment and price stability. They also noted that the path of the economy would depend significantly on the course of the virus and that the ongoing public health crisis would continue to weigh on economic activity, employment, and inflation in the near term and posed considerable risks to the economic outlook over the medium term.
In their discussion, the policymakers agreed that the ongoing public health crisis would continue to weigh on economic activity, employment, and inflation in the near term and was posing considerable risks to the economic outlook over the medium term. All members agreed to maintain the target range for the federal funds rate at zero to 0.25 percent.
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