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The U.S. economy will likely experience a significant slowdown early in 2021, Philadelphia Federal Reserve President Patrick Harker said on Thursday.
“On the national level, I’m expecting fourth quarter growth to show modest improvement before a significant slowdown in the first quarter of this year, possibly even negative growth in the first quarter,” Harker said, in a speech on the economic outlook to a conference sponsored by the Philadelphia Business Journal.
The government’ won’t release its first estimate fourth-quarter GDP growth until the end of January. The economy’s performance in the first three months won’t be reported until the end of April.
Harker said the weakness in the should stay relatively short though as the the economy will start to rebound once more Americans receive the COVID-19 vaccination
Harker said the rollout of the vaccine in the U.S. “has been incredibly disappointing so far.”
The recently passed $900 billion economic relief package from Congress should also help, he added.
“I am optimistic that in the second half of this year, the economy, and, frankly, life, should begin to move back to something resembling normal. GDP growth should be strong in the second half of the year and through 2022, before a light tapering in 2023,” Harker said.
However, the recovery will be widely uneven across sectors, Harker said. Automation is a challenge to the economy. Many of the jobs eliminated by the pandemic will never return.
For example, he noted the Pennsylvania Turnpike has switched permanently to automatic tolling.
The Federal Reserve is buying $80 billion of U.S. Treasurys and $40 billion of mortgage-backed securities to help the economy and financial markets.
Harker said he personally wouldn’t want to change the pace of these purchases this year. “The fewer things we change, the better,” he said.
If the Fed tapers the purchases too soon, it could cause market disruption, he added. “I could see potentially that occurring at the very end of 2021 or early 2022 but it is all going to depend on the course if the economy, which will depend on the course of the virus,” he said
U.S. stocks were higher on Thursday even after a violent mob stormed the Capitol building on Wednesday before election of Joe Biden was confirmed by Congress. The Dow Jones Industrial Average DJIA, +0.83% was up 290 points in late morning trading.
