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Fed keeps rate near zero and sees brighter economy in 2021 – The Tri-City News

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WASHINGTON — The Federal Reserve said Wednesday that it will keep buying government bonds until the economy makes “substantial” progress, a step intended to reassure financial markets and keep long-term borrowing rates low indefinitely.

The Fed also reiterated after its latest policy meeting that it expects to keep its benchmark short-term interest rate near zero through at least 2023. The Fed has kept its key rate there since March, when it took a range of extraordinary steps to fight the pandemic recession by keeping credit flowing.

Chair Jerome Powell said he and other Fed officials expect the economy to rebound at a healthy pace next year as viral vaccines become widely distributed. But the next three to six months will likely be painful for the unemployed and small businesses as pandemic cases spike, Powell said at a news conference.

In a statement and in Powell’s answers to reporters, the Fed signalled that it’s prepared to keep rates ultra-low for the long run to help the economy withstand those threats and sustain a recovery. Yet Powell also pointedly stressed the need for further rescue aid from Congress to ease the impact of increased apartment evictions and business failures, and he expressed optimism about the deal under consideration by Congress.

“The case for fiscal policy right now is very, very strong,” Powell said, “and I think that is widely understood now. It’s a very positive thing that we may finally be getting that.”

Congressional leaders appear to be nearing agreement on a $900 billion relief package that would provide extended unemployment benefits, more loans for small businesses and possibly another round of stimulus checks for individual Americans.

“Ongoing fiscal negotiations are more important than anything the Fed did today,” said Eric Winograd, U.S. economist at asset manager AllianceBernstein.

The Fed’s policymakers made just one notable change to the statement they issue after each meeting. On Wednesday, they said the central bank will continue to buy at least $80 billion of Treasurys and $40 billion of mortgage-backed securities a month “until substantial further progress has been made” toward the Fed’s goals of maximum employment and stable prices.

Those purchases are intended to hold down longer-term rates, including borrowing costs for mortgages, auto loans and some business loans. Previously, the Fed had said only that the purchases would continue “over coming months.” The new guidance suggests that the bond buys will continue indefinitely.

“The key message is still that policy will remain unusually accommodative — with near-zero rates and asset purchases — continuing for several more years,” said Paul Ashworth, chief U.S. economist for Capital Economics.

Some economists faulted the phrasing as too evasive. More precise guidance might prevent financial markets from anticipating an end to the purchases before the Fed intends to reduce them.

“The Fed’s forward guidance is disappointingly vague,” Winograd said, and could lead investors to force up interest rates sooner than the Fed would prefer.

In quarterly economic projections that the policymakers issued Wednesday, they painted a brighter picture for next year. Their upgrades likely reflect the expected impact of new coronavirus vaccines. The officials now foresee the economy contracting 2.4% this year, less than the 3.7% decline it envisioned in September. For next year, in anticipation of a rebound, the officials have upgraded their growth forecast from 4% to 4.2%.

By the end of 2021, the Fed expects the unemployment rate to fall to 5% from the current 6.7% — lower than the 5.5% rate it had forecast in September.

The Fed’s latest policy statement coincides with an economy that is stumbling and might even shrink over the winter as the raging pandemic forces new business restrictions and keeps many consumers at home. Weighing the bleak short-term outlook and the brighter long-term picture has complicated the Fed’s policymaking as it assesses how much more stimulus to pursue.

At his news conference, Powell acknowledged that challenge.

“The case numbers are so high and so widespread across the country … this will have the effect of suppressing activity,” he said, particularly in-person services such as eating out and travelling.

“At the same time, people are getting vaccinated, now,” he added. “You have to think sometime in the middle of next year, you’ll see people comfortable going out and engaging in a broader range of activities.”

Recent economic reports have generally reflected a sharply slowing recovery. On Wednesday, the Commerce Department reported the sharpest drop in retail sales in seven months. Americans held back on spending in November at the start of the holiday shopping season, which typically accounts for a quarter or more of retailers’ annual sales.

And last week, the number of people seeking unemployment aid rose for the third time in four weeks, evidence that companies are increasingly cutting jobs nine months since the erupted of the pandemic caused a deep recession.

Some economists had expected the Fed to announce a shift in its bond purchases by buying more longer-term bonds and fewer shorter-term securities — a step they could still take in future meetings.

Such a move would seek to deliver more immediate help for consumers and businesses. Buying more 10-year Treasurys, for example, lowers their yield, and the 10-year yield influences mortgage rates and other borrowing costs. Yields on two- or three-year bonds, by contrast, don’t affect many other rates. But the Fed may prefer to keep that step in reserve in the event that the economy significantly worsens next year.

Powell also addressed the Fed’s decision Tuesday to join the Network of Central Banks and Supervisors for Greening the Financial System, an organization of 83 central banks and regulators that is considering how to gauge the risk climate change poses for banks’ lending portfolios.

“Climate change is an emerging risk to financial institutions, the financial system and the economy,” Powell said. “And we are, as so many others are, in the very early stages of understanding what that means, what needs to be done about it and by whom.”

Christopher Rugaber And Martin Crutsinger, The Associated Press


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RELEASE: 10 Recommendations That Will Improve Maine's Economy and Democracy – Center For American Progress

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RELEASE: 10 Recommendations That Will Improve Maine’s Economy and Democracy – Center for American Progress


Washington, D.C. — In Maine, more than 12 percent of residents live below the poverty line, and more than 1 in 3 families do not earn enough to pay for basic expenses. A new report from the Center for American Progress explains how strengthening worker power is key to reducing poverty and economic inequality in the state and how it would help to raise wages, close racial and gender pay gaps, and make the state’s democracy more responsive to the public.

While there are many steps the state could take to address these issues—including improving workplace health and safety standards, enforcing anti-discrimination rules, and reducing the influence of money in politics—ensuring that workers have a collective voice is crucial. Union membership in Maine has plummeted over the past 50 years. Today, only 5.5 percent of private sector workers belong to a union, despite the fact that research shows that unions help Mainers earn higher wages and benefits. Declining union membership has been accompanied by rising income equality in the state.

The report provides a blueprint for Maine policymakers to build worker power in their state, including these 10 policy recommendations:

  1. Provide workers a voice in setting and enforcing public health standards.
  2. Ensure that government spending creates good jobs.
  3. Improve workforce training by more fully involving worker organizations.
  4. Create workers’ boards to provide workers a voice in determining minimum industrywide pay and benefits.
  5. Partner with worker organizations and provide workers with a private right to action to ensure that workplace standards are enforced.
  6. Involve worker organizations in unemployment insurance modernization.
  7. Strengthen public sector unions.
  8. Use business permitting and licensing standards to support high-road businesses.
  9. Close loopholes that allow employers to skirt legal responsibilities and undermine worker power.
  10. Implement broad anti-retaliation protections.

“The COVID-19 crisis has exacerbated inequalities and shone a light on unsafe conditions in many Maine workplaces,” said David Madland, senior fellow at CAP and co-author of the report. “Weak worker protections and low rates of union membership have made it harder for workers to speak out and ensure that they are compensated fairly for their work. State policymakers can ensure a safer and more equitable economy for all Mainers by enacting reforms that strengthen workers’ voices on the job and in the economy.”

Read the report: “Strategies To Build Worker Power in Maine: 10 Recommendations That Will Improve Maine’s Economy and Democracy” by David Madland and Malkie Wall

For more information or to speak with an expert, contact Julia Cusick at .


The Center for American Progress is an independent nonpartisan
policy institute that is dedicated to improving the lives of all
Americans, through bold, progressive ideas, as well as strong
leadership and concerted action. Our aim is not just to change
the conversation, but to change the country.

© 2021 – Center for American Progress

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Biden's rescue plan will give U.S. economy significant boost: Reuters poll – The Telegram

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By Indradip Ghosh and Richa Rebello

BENGALURU (Reuters) – U.S. President Joe Biden’s proposed fiscal package will boost the coronavirus-hit economy significantly, according to a majority of economists in a Reuters poll, and they expect it to return to its pre-COVID-19 size within a year.

Biden has outlined a $1.9 trillion stimulus package proposal to jump-start the world’s largest economy, which has been at the epicenter of the COVID-19 pandemic having lost over 400,000 lives, fueling optimism and sending Wall Street stocks to record highs on Thursday.

Hopes for an upswing in U.S. economic growth, helped by the huge stimulus plan, was reflected in the Jan. 19-22 Reuters poll of more 100 economists.

In response to an additional question, over 90%, or 42 of 46 economists, said the planned fiscal stimulus would boost the economy significantly.

“There are crosswinds to begin 2021 as fiscal stimulus helps to offset the virus and targeted lockdowns. The vaccine rollout will neutralize the latter over the course of the year,” said Michelle Meyer, U.S. economist at Bank of America Securities.

“And upside risks to our…growth forecast are building if the Democrat-controlled government can pass additional stimulus. The high level of virus cases is extremely disheartening but the more that the virus weighs on growth, the more likely that stimulus will be passed.”

For a Reuters poll graphic on the U.S. economic outlook:

https://fingfx.thomsonreuters.com/gfx/polling/oakveynqovr/Reuters%20Poll%20-%20U.S.%20economy%20outlook.png

The U.S. economy, which recovered at an annualized pace of 33.4% in the third quarter last year from a record slump of 31.4% in the second, grew 4.4% in the final three months of the year, the poll suggested.

Growth was expected to slow to 2.3% in the current quarter – marking the weakest prediction for the period since a poll in February 2020 – amid renewed restrictions.

But it was then expected to accelerate to 4.3%, 5.1%, 4.0% in the subsequent three quarters, a solid upgrade from 3.8%, 3.9% and 3.4% predicted for those periods last month.

On an annual basis, the economy – after likely contracting 3.5% last year – was expected to grow 4.0% this year and 3.3% in 2022, an upgrade from last month.

For a graphic on Reuters Poll – U.S. economy and Fed monetary policy – January 2021:

https://fingfx.thomsonreuters.com/gfx/polling/azgpoljbkvd/U.S.%20economy.PNG

Nearly 90%, or 49 of 56 economists, who expressed a view said that the U.S. economy would reach its pre-COVID-19 levels within a year, including 16 who expected it to do so within six months.

“Even without the stimulus package, we had already thought the economy would get back to pre-COVID levels by the middle of this year,” said Jacob Oubina, senior U.S. economist at RBC Capital Markets.

“With the new stimulus package there will be more direct money in people’s pockets, easily boosting the economy, provided a vaccine rollout progresses in a constructive manner.”

But unemployment was not predicted to fall below its pre-pandemic levels of around 3.5% until 2024 at least.

When asked what was more likely for inflation this year, only one said it would ease. The other 40 economists were almost evenly split between “a significant pickup” and price pressures remaining “about the same as last year.”

Still, the core Personal Consumption Expenditures (PCE) price index – the Federal Reserve’s preferred inflation gauge – was forecast to average below the target of 2% on an annual basis until 2024 at least, prompting the central bank to keep interest rates unchanged near zero over the forecast horizon.

“I don’t think it will be an increase in underlying (inflation) trend, it is sort of a rebound in prices that have been depressed during the pandemic,” said Scott Brown, chief economist at Raymond James.

(For other stories from the Reuters global long-term economic outlook polls package:)

(Reporting by Indradip Ghosh and Richa Rebello; Additional reporting by Manjul Paul; Polling by Mumal Rathore; Editing by Rahul Karunakar and Hugh Lawson)

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How Biden's Pandemic Plan Could Affect The Economy – NPR

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President Biden has outlined an aggressive plan to gain control over the coronavirus pandemic, which continues to weigh heavily on the U.S. economy.

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