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Fed Says Outlook for 2021 Has Brightened

But interest rate is staying near zero
By Newser Editors and Wire Services
Posted Dec 16, 2020 3:01 PM CST

(Newser) – The Federal Reserve said Wednesday that it will keep buying government bonds until the economy makes "substantial" progress—a step intended to reassure financial markets and keep long-term borrowing rates low indefinitely. The Fed also reiterated after its latest policy meeting that it expects to keep its short-term benchmark interest rate near zero through at least 2023, the AP reports. The Fed has kept its key rate there since March, when it took a range of extraordinary steps to fight the pandemic recession by keeping credit flowing. In a series of economic projections Wednesday, though, Fed officials painted a brighter picture of the economy next year, compared with its previous projections in September. The improvement likely reflects the expected impact of the new coronavirus vaccines.

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The policymakers now foresee the economy contracting 2.4% this year, less than the 3.7% decline it envisioned in September. For next year, with anticipation of a rebound, the officials have upgraded their growth forecast from 4% to 4.2%. By the end of 2021, the Fed expects the unemployment rate to fall to 5% from the current 6.7%—lower than the 5.5% rate it had forecast in September. Fed Chair Jerome Powell and many other officials have repeatedly urged Congress to approve more economic aid to carry the economy through what's expected to be a financially painful winter. "Economic dislocation has upended many lives and created great uncertainty about the future," Powell said Wednesday.

(Read more Federal Reserve stories.)

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