The US economy should do a little better than expected, according to the Fed

The Federal Reserve expects a decline of 3.7% of GDP in 2020, against 6.5% expected in June. Its president insists on the importance of new aid for households and businesses.

The US economy is expected to fare a little better than expected in 2020, but the return to the booming situation at the start of the year is still a long way off, and the crisis is hitting Americans very unevenly, the Federal Reserve has warned. .

The recession will be less severe than expected in 2020, and employment should recover more quickly than expected. However, the pace of the recovery in the United States is “highly uncertain”, admitted Wednesday the president of the Fed, Jerome Powell.

In addition, economic activity generally remains well below its pre-COVID-19 pandemic levels, he added.

“I would say it will take time to (regain) economic expansion,” he commented.

The fall in the gross domestic product of the United States should however be less brutal than expected in 2020, with a drop of 3.7%, instead of the 6.5% forecast in June, in the latest forecasts of the Fed.

On the other hand, the rebound that will follow will also be less strong: 4% in 2021 and not 5%, and 3% in 2022 instead of 3.5%, then 2.5% in 2023.

“The recovery of the economy will depend closely on the evolution of the virus,” said the Fed, which concluded its last monetary meeting on Wednesday before the presidential election on November 3, the scene of a duel between the Republican Donald Trump and Democrat Joe Biden.

“The current health crisis will continue to weigh on economic activity, employment and inflation in the short term, and poses considerable risks to the medium-term economic outlook,” she adds.

A “long road” to full employment

The unemployment rate should also be lower than expected, at 7.6% in 2020, against an estimated 9.3% in June when the economy was then gradually recovering after the paralysis caused by the COVID-19 pandemic.

The figures for August were better than expected with an unemployment rate already reduced to 8.4% after a historic high of 14.7% in April.

But there is “a long way to go” before regaining full employment, said Jerome Powell.

The month of February seems far away, with its unemployment rate at the lowest in 50 years, at 3.5%, which is however “not a magic number”, he said.

Because, “nobody can say if this figure is the reference” of full employment, he added.

Maximum employment is the goal on which the Federal Reserve has decided to concentrate its forces. Allowing all Americans to have a job is indeed the best way for the Fed to relaunch the machine in the long term and to reduce inequalities, which are very strong in the country and exacerbated by the crisis.

“We see maximum employment as a broad and inclusive goal,” explained Jerome Powell.

To achieve this, it recently made a major change in its monetary policy, temporarily allowing inflation above the 2% annual target, without raising interest rates, as it would have done so far.

Thus, the Fed has revised its inflation target upwards, and now expects 1.2% in 2020, against 0.8% forecast, and expects to reach the 2% target in 2023.

On the interest rate side, on the other hand, no surprise, they remain unchanged, remaining at the lowest, in the range of 0 to 0.25% where it had lowered them urgently in March, in the face of the spread of Covid-19 in the United States and the implementation of containment measures.

And they should remain so at least until 2023.

New government assistance

This meeting of the Monetary Committee was the last before the November 3 presidential election. But Jerome Powell was careful not to comment on this deadline.

However, he insisted on the importance of new aid for households and businesses, a sine qua non condition for relaunching the economic machine.

Further aid to US households and businesses is “probably needed,” he said, noting that “nearly 11 million people are still out of work because of the pandemic, and a good chunk of those people were working in sectors that are struggling. These people need extra support ”.

An agreement could be found on Wednesday, as the White House and congressional officials have been negotiating in vain for a month and a half. The discussions stalled in particular on the amount of the envelope, the Republicans refusing to approve all the funds requested by the Democrats.

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