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Fed's Kaplan sees 'upside' to 5% U.S. GDP growth forecast

Kitco News

(Reuters) - Dallas Federal Reserve President Robert Kaplan on Monday repeated that he expects the U.S. economy to grow at about a 5% pace this year, but added that he could be underestimating the strength of the post-pandemic recovery.

Americans will “gradually” engage more fully in the economy between now and June as coronavirus vaccines are rolled out, Kaplan predicted in an International Energy Forum, and “we think we see substantial improvements in mobility and engagement in the third quarter and fourth quarter.”

“If we are wrong, the risks are to the upside - we may grow faster,” Kaplan added. Unemployment, now at 6.3%, will “meaningfully” decline, and inflation will firm, he said.

With the Biden administration’s proposed $1.9 trillion pandemic relief package looking increasingly likely to win passage in Congress, economists have already begun to raise their 2021 GDP forecasts.

Bank of America economists on Monday said they now expect the U.S. economy to grow 6.5% this year, up from a previous call for 4.5% growth, based on the expected size of the stimulus package and better news on the economy and the virus.

Fed officials will deliver their next set of quarterly economic projections at a policy meeting in March.

Their median forecast from December of 4.2% growth this year is looking increasingly stale amid strong consumer spending.

Kaplan said a lot will depend on the handling of the pandemic, especially the pace of vaccine rollouts globally.

The United States has partially or fully vaccinated about 44 million people, or about 13% of the population, according to figures from the U.S. Centers for Disease Control and Prevention. Only Israel, the United Arab Emirates, and the United Kingdom have rolled out vaccines at a faster pace here.

Reporting by Ann Saphir; Editing by Paul Simao

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