The U.S. economy is rebounding strongly after taking a big hit because of the coronavirus pandemic, but it may be another year before the economy returns to pre-crisis levels and take even longer for the labor market to recoup lost ground, Federal Reserve Vice Chair Richard Clarida said on Monday.
"While recovery since the spring collapse in economic activity has been robust, let us not forget that the full economic recovery from the COVID-19 recession has a long way to go," Clarida said during a virtual discussion organized for the American Bankers Association Convention.
The pandemic threw the U.S. economy into a "very deep hole" and despite recent improvements, the outlook is "unusually uncertain," Clarida said.
The U.S. unemployment rate has dropped significantly to 7.9% from a high of 14.7% seen earlier this spring, but it may not drop below 4% again until the end of 2023 according to Fed projections.
The Fed will keep interest rates near zero until inflation reaches the Fed's 2% target on at least on a year-over-year basis and there are signs of a healthy labor market, Clarida said. "Liftoff will be governed by economic conditions, not by the calendar, and if the economy recovers faster and sooner, that would mean earlier liftoff," Clarida said. "And if it recovers more slowly, that would mean later liftoff."
More monetary and fiscal policy are needed to support the economy throughout the recovery, and the Fed will continue to do its part, he said.
"Speaking for the Fed, I can assure you that we are committed to using our full range of tools to support the economy and to help ensure that the recovery from this difficult period will be as robust and rapid as possible," Clarida said.
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