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Essentials of Monetary Policy

Federal Reserve (Fed). The Fed Upgrades Its Economic Forecasts but Signals No Monetary Policy Change

March 17, 2021
François Dupuis • Mathieu D’Anjou • Francis Généreux • Hendrix Vachon

With the adoption and rollout of the new federal relief plan, the Fed clearly had to show a more positive picture of the economic situation. This shows slightly in its statement, but particularly in the changes to its projections. Fed leaders sharply increased their projections for the annual variation in real GDP in the fourth quarter of 2021, taking it from 4.2% last December to 6.5%. The outlooks for real GDP growth have been increased slightly for 2022, and trimmed slightly for 2023. At the same time, the Fed downgraded its projections for the jobless rate, putting it at 4.5% in the final quarter of this year, and taking it to 3.5% at the end of 2023. Inflation was also covered by the changes: the annual variation in the expenditure deflator forecast for the end of 2021 goes from 1.8% to 2.2%. The variation would be 2.0% in 2022 and 2.1% in 2023.