The U.S. Federal Reserve now sees the national economy in a more favorable light, predicting only a negative 2.4% gross domestic product plunge in 2020 compared to a 3.7% contraction predicted in September.
In its Summary of Economic Projections released Wednesday, Federal Reserve also increased its real gross domestic product forecast for 2021 to 4.2% from 4.0% previously estimated.
The Fed said the outlook for the U.S. economy will continue to depend significantly on the course of the COVID-19 pandemic. This catastrophe now on its 10th month will continue to undermine economic activity, depress employment and cool inflation in the near term. In the medium-term, however, the coronavirus poses considerable risks to the economic outlook, estimates Federal Reserve.
The central bank noted with satisfaction economic activity and employment continue to recover, but remain well below their levels at the beginning of the year. In line with its mandate, Federal Reserve will keep trying seeks to achieve maximum employment and inflation at the rate of 2% over the longer run.
"Weaker demand and earlier declines in oil prices have been holding down consumer price inflation," said Federal Reserve in a statement Wednesday.
"Overall financial conditions remain accommodative, in part reflecting policy measures to support the economy and the flow of credit to U.S. households and businesses."
The Fed said it will continue to increase its holdings of U.S. treasury securities and agency mortgage-backed securities. It intends to boost its holdings of Treasurys by at least $80 billion per month, and of mortgage-backed securities by at least $40 billion per month.
It plans to keep doing this until substantial further progress has been made toward attaining the Federal Open Market Committee's maximum employment and price stability goals.
"These asset purchases help foster smooth market functioning and accommodative financial conditions, thereby supporting the flow of credit to households and businesses," according to Federal Reserve.
The Fed estimates the unemployment rate decreasing to 6.7% this year, well below the 7.6% predicted in September. It sees the unemployment rate falling to 5.0% in 2021 compared to its previous estimate of 5.5%.
The Fed kept its inflation estimates for 2020 unchanged at 1.2%. FOMC now sees personal consumption expenditure inflation at 1.8% in 2021, slightly above its previous estimate of 1.7%.
