What is the Federal Reserve Expecting for the American Economy in 2021?

The U.S. Federal Reserve has decided on Wednesday to maintain its main rate unchanged near 0%, as well as the current pace of asset purchases at $120 billion per month until the maximum employment and 2% inflation targets are achieved.

The Fed’s policy statement, which was released following the two-day Federal Open Market Committee (FOMC) meeting, noted that the bond buying helps foster smooth market functioning and accommodative financial conditions, supporting the flow of credit to households and businesses.

The Fed now expects the U.S. economy will grow by 6.5% this year, compared with an expected 4.2% growth rate last December.

If achieved, this would be the highest growth rate for the American economy since it expanded by 7.2% in 1984.

Moreover, the Fed expects the unemployment rate to decline from the current level of 6.2% to 4.5% by the end of 2021, 0.5% less than the 5% rate expected in the December meeting.

The upbeat forecasts are attributed to the indicators of economic activity and employment recently rising, as the statement explained, noting that sectors most adversely affected by the pandemic remain weak.

Furthermore, the Fed expects inflation in the U.S. will exceed the 2% strategic target, reaching 2.4% before declining again next year.

Seven out of 18 FOMC members expect to raise rates in 2023, while four believe raising rates could be necessary in 2022.