WASHINGTON (Pakistan Point News / Sputnik - 25th February, 2021) US economic prospects for this year look brighter than initially thought, with downside risks to the outlook diminished by recent recovery trends and the promise from coronavirus vaccination programs, Federal Reserve Vice Chairman Richard Clarida said on Wednesday.
"The prospects for the economy in 2021 and beyond have brightened and the downside risk to the outlook has diminished," Clarida said in a live-streamed speech to the US Chamber of Commerce.
While the winter surge in new coronavirus cases and the spread of new variants were a concern to the immediate economic outlook, "several effective vaccines" had mitigated some of the risks, he said.
Clarida's speech comes after Federal Reserve Chairman Jay Powell told the Senate Banking Committee on Tuesday that the US outlook remained highly uncertain, with recovery appearing uneven and far from complete. However, Powell also said he expected GDP growth to return to pre-pandemic levels by the first half of this year.
Clarida concurred with Powell that "it will take some time for economic activity and employment to return to levels that prevailed at the business cycle peak reached last February."
The Vice Chairman pointed out that a number of macroeconomic data releases in recent months have been weaker than expected while spending on services continued to remain well below pre-pandemic levels, particularly in contact-intensive sectors such as travel, leisure and hospitality.
"Although more than half of the 22 million jobs that were lost last spring have been regained, the unemployment rate remained elevated at 6.3 percent in January, and once one factors in the decline in the labor force since the onset of the pandemic and misclassification, the true unemployment rate is closer to 10 percent," he said.
But some of the positives that followed were just as impressive, Clarida also said, adding that retail sales, for instance, had stepped up considerably in January, retracing declines from late last year.
The housing sector had also more than fully recovered from the downturn, supported in part by low mortgage interest rates, he said.
"And while the economy might not continue to grow at the once-in-a-century 33 percent annualized rate of growth reported in the third quarter of 2020, it is clear that the economy has turned out to be more resilient in adapting to the virus, and more responsive to monetary and fiscal policy support, than many predicted," Clarida added.
The US economy shrank 3.5 percent in 2020 after a 2.2 percent growth in 2019.
