• The COVID-19 pandemic created unprecedented volatility in economic growth in 2020. A recordshattering decline in real GDP in the second quarter was followed by a similarly record-breaking gain in the third. However, economic activity slowed dramatically in the fourth quarter, as infection rates and restrictions on activity increased. Growth retreated from 33.4% in the third quarter to 4.3% in the fourth.

For 2020 as whole, the economy contracted at a 3.5% annual rate.

• Policy support has been strong. Four major fiscal packages to deal with the impact of the pandemic were passed in 2020, the last one in December. Together, they amounted to almost US$ 4 trillion in economic relief. On 11 March 2021, another fiscal package – the American Rescue Plan, a US$ 1.9 trillion stimulus bill – was signed into law. The Federal Reserve has held interest rates near zero since March 2020 and has been spending about US$ 120 billion in asset purchases each month. It has also adopted a new “flexible average inflation targeting” framework that aims for inflation rate to average 2% over time.

Under this framework, the Fed funds rate will likely stay low for longer, with a strong emphasis on the maximum employment objective of the dual mandate.

• The pandemic’s impact has been uneven. At the end of 2020, there were roughly 10 million fewer jobs in the United States than there were before the pandemic, and the labor participation rate fell to 61.4% from 63.3%. Employment fell more for black and Hispanic workers. More than 2 million women in the United States left the workforce over the last year. Women were driven out of the workforce by the disproportionate impact of pandemic restrictions on female-dominated industries and the lack of school and adequate child-care options.

• Recent data releases suggest that economic growth is accelerating, supported by a faster pace of vaccinations that is contributing to ease business restrictions and increase consumer spending. In March 2021, manufacturing activity hit its highest mark since December 1983, and nonmanufacturing activity reached its highest level since the late 1990s, according to the Institute for Supply Management. Retail spending increased by almost 10% from a month earlier, as federal-stimulus funds made their way to households, warmer weather set in, and the economy reopened more fully. Moreover, almost 1 million jobs were created, and the unemployment rate fell to 6% from 6.2% in February.

• An accelerating economy could lead to an increase in inflation, as supply constraints and the return to normalcy puts upward pressure on prices. Consumer prices rose 0.6% in March according to the Labor Department, the quickest pace since August 2012, as increased vaccinations and unprecedented fiscal stimulus unleashed pent-up demand. So far, upward pressures on prices are expected to be transitory.

• Forecasts for economic growth in 2021 have been upgraded. With the vaccination rollout picking up pace, and with the combined strength of fiscal and monetary stimulus, Federal Reserve officials, as well as private forecasters, say the United States economy – currently projected to grow at about 6.5% in 2021–is positioned for its fastest year of growth since the early 1980s.

• But the U.S. economy still has a long way to go before it fully recovers. In March 2021, the number of unemployed 27 weeks or longer increased to 4.2 million from 4.1 million in February, and one year after the pandemic started, there are still 8.4 million fewer jobs in the United States economy.