Officials at the Federal Reserve upgraded their estimates of recovery from the coronavirus on Wednesday due to the expected impact of more than $400 billion in direct stimulus payments to Americans as well as other provisions of the recently passed $1.9 trillion stimulus package.
Members of the Federal Open Market Committee (FOMC) said they thought the GDP would now grow 6.5% in 2021 rather than the 4.2% previously estimated. They also thought unemployment would reach 4.5% by December rather than 5%, as previously projected.
The officials said they did not see unemployment reaching pre-pandemic levels (3.5%) until 2023, however. Nearly 100,o00 small businesses that were temporarily closed during the pandemic have shut down permanently, Fortune reported, and those kind of losses are going to take time to replace.
The FOMC said their projections were not official from the Federal Reserve Bank, but are a guide to where officials think the economy is headed.
Economies opening as vaccinations ramp up
Besides the COVID relief bill, accelerated vaccinations of most U.S. adults is also helping the economy rebound by getting more people back in the work force as well as back to eating out and other public activities. New case numbers in the U.S. have continued to drop as more people receive vaccinations, which is encouraging some of the stricter U.S. governors to open their economies more.
The recession caused by coronavirus-related shutdowns was the sharpest decline on record in U.S. history, but the recovery is also happening faster than expected.
Even with the rapid recovery and trillions of dollars artificially thrown into the economy, however, Fed members are not expecting to raise interest rates for at least the rest of 2021, and most do not think it will be raised more than once in 2022 either.
Fed Chair Jerome Powell has been consistent in saying rates will not be raised until inflation of more than two percent is likely, something that is not expected to happen this year and possibly not the next, either.
Fed not backing off support for COVID-wracked economy
For the forseeable future, Powell also said the Fed would keep buying $120 billion a month in Treasury and mortgage bonds to help prop up the economy.
While some of the stimulus money sent to households is likely to end up in savings accounts, some will also be spent on bills and discretionary items that will contribute to the health of the overall economy.
The IRS reported that it disbursed 90 million stimulus checks this week, mostly through direct deposit. After a short delay caused by the choice of Wednesday for the date when funds would be released to banks and credit unions, the money will be hitting most accounts Wednesday.
The huge task has not helped the IRS process tax forms submitted by millions of Americans, and word went out on Wednesday that the IRS will now delay the tax filing due date until May 17 to give itself time to catch up on processing returns.