Key sectors of the economy, though, are showing signs of picking up as vaccinations increase and government rescue aid works its way through the economy. The Federal Reserve’s ultra-low-rate policy is providing key support, too.
Retail sales soared last month as many Americans spent the $600 checks that were included in a relief package enacted in December. Factory output also rose and has nearly regained its pre-pandemic levels. And sales of newly built homes soared last month.
Michelle Meyer, an economist at Bank of America, this week upgraded her forecast for growth this year to 6.5%, which would be the fastest since 1984. Daily coronavirus infections are down more than 70% from their peak, Meyer noted, which should lead to more states and cities relaxing business restrictions.
Further economic relief is also likely, she noted, as Congress considers President Joe Biden’s proposal for a new aid package amounting to $1.9 trillion.
The Fed has pegged its short-term interest rate near zero to encourage more borrowing and spending. Chair Jerome Powell stressed in testimony to Congress this week that the Fed plans to keep its rate ultra-low until the job market has recovered — even if inflation has begun to surpass the Fed’s 2% target level by then. That soothed the stock market, which had fallen in the past week on fears that rising interest rates and the threat of inflation might lead the Fed to raise rates too quickly and potentially derail the economy.