US economy should fare a little better than expected, Fed says

The recession of the US economy in 2020 should be less brutal than expected, but the rebound will be less strong in the following years, estimated the US central bank, the Fed, which also left its rates unchanged during its meeting. monetary.

The gross domestic product of the United States is expected to decline 3.7% in 2020, when it saw a drop of 6.5% in June. But the rebound that will follow will be less strong: 4% in 2021 and not 5%, and 3% in 2022 instead of 3.5%, then 2.5% in 2023.

Unemployment, which was at its lowest level in 50 years at 3.5% in February, is expected to rise to 7.6%, which is better than the 9.3% estimated in June when the economy was recovering gradually on the move 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% against a historic high of 14.7% in April.

“The recovery of the economy will depend closely on the evolution of the virus,” the Fed said in a statement released Wednesday after the meeting.

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

The Fed has also revised inflation up for 2020 to 1.2% from 0.8% and expects to reach the 2% target in 2023.

The Federal Reserve has just changed its policy in the face of this unprecedented situation in order to make it easier for the country to return to full employment.

It will allow inflation to temporarily go beyond the 2% annual target without raising rates, which it has been doing until now.

– Last meeting before the election –

The powerful financial institution unsurprisingly left its interest rates unchanged. They had been lowered to a range of 0 to 0.25% in an emergency in March, in the face of the spread of Covid-19 in the United States and the implementation of containment measures.

This decision was not taken unanimously, with two people voting against.

This meeting of the Monetary Committee was the last before the November 3 presidential election.

The world’s largest economy is stalling, after the strong rebound that immediately followed the spring confinement period, intended to try to slow the spread of Covid-19.

Symbol of this slowdown in the recovery, retail sales increased much less than expected in August.

“General financial conditions have improved in recent months, thanks on the one hand to political measures to support the economy,” notes the Fed, however.

Fed Chairman Jerome Powell is expected to stress the importance of new aid for households and businesses at his press conference, a sine qua non for restarting the machine.

However, the White House and the elected representatives of Congress have been negotiating in vain for a month and a half. Discussions are stalling in particular on the amount of the envelope, the Republicans refusing to approve all of the funds requested by the Democrats.

The tone was more encouraging on Wednesday morning, however.

“I have probably been more optimistic in the 72 hours about the potential for a deal, than I have been in the past 72 days,” White House Chief of Staff Mark Meadows commented on CNBC.

“The Democrats are” heartless. “They don’t want to give money to people who desperately need it. (…) Give more, Republicans, it will come back to the US anyway (somehow or other). another!) “, Donald Trump even tweeted, encouraging his party to strike a deal.

Either way, Democrats will not leave Congress without a deal, House Democrat Leader Nancy Pelosi promised Tuesday.

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