Fed sees growth surge, above-target inflation in 2021; no change on rates

Officials see 2021 GDP growth of 6.5%, unemployment at 4.5%

The Federal Reserve on Wednesday projected a rapid jump in US economic growth and inflation this year as the Covid-19 crisis winds down, and repeated its pledge to keep its target interest rate near zero for years to come.

The US central bank now sees the economy growing 6.5% this year – predicting the largest annual output growth since 1984 – and the unemployment rate falling to 4.5% by year’s end, compared to growth of 4.2% and unemployment of 5% projected at its December policy meeting.

The pace of price increases is now expected to exceed the Fed’s 2% target for the year, hitting 2.4% by year’s end before falling back in 2022.

“Indicators of economic activity and employment have turned up,” the policy-setting Federal Open Market Committee said in a statement that kept the benchmark overnight interest rate in a target range of zero to 0.25%.

The improvement in the Fed’s economic outlook did not immediately alter policymakers’ expectations for interest rates, though the weight of opinion did shift. Seven of 18 officials now expect to raise rates in 2023, compared to five in December.

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