Fed boosts US growth forecast to 6.5% this year

©Agence France-Presse

The Federal Reserve sees the US economy growing more than expected in 2021, and inflation rising as well, but no rates hikes are foreseen through 2023

Washington (AFP) - US central bankers are much more optimistic about the economic outlook, boosting their median growth estimate by more than two points to 6.5 percent, the Federal Reserve said Wednesday.

Faster growth will also cause inflation to rise to 2.4 percent, but the projections from members of the policy-setting Federal Open Market Committee (FOMC) showed they do not expect to raise their benchmark interest rate through at least 2023.

The upgraded forecasts, the first released since December, reflect the expected boost from the $1.9 trillion relief package President Joe Biden signed last week, and the aftereffects of a $900 billion aid measure Congress approved in the final days of 2020.

Those floods of cash are expected to shore up businesses, boost hiring and unleash spending, and the Treasury Department on Wednesday said 90 million of the latest stimulus payments of up to $1,400 per-person have already gone out.

FOMC members see unemployment improving somewhat, falling to 4.5 percent by the end of the year from 6.2 percent currently, but they do not expect joblessness to return to pre-pandemic levels until 2023.

Financial markets have been concerned that the economy's stimulus-fueled rebound will spark an inflationary spiral that would oblige the central bank to pull back on easy-money policies it rolled out as the Covid-19 pandemic began last year.

But Fed officials have downplayed that concern, and their forecasts show economic growth is expected to taper off to 3.3 percent next year, with an accompanying dip in inflation to 2.0 percent.

Following the two-day meeting, the FOMC said the pandemic still "poses considerable risks to the economic outlook."

However, the central bank is "prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee's goals."

Fed Chair Jerome Powell will have the chance to address the concerns in his press conference beginning at 1830 GMT.