Friday, July 3, 2020

Fed officials raised concerns in June that U.S. could enter a much worse recession later this year if coronavirus cases continued to surge

The scenario, which officials described as plausible, was revealed in minutes of their June meeting before the surge in cases escalated.

Federal Reserve Chair Jerome H. Powell testified June 30 before the House Financial Services Committee on his department’s response to the coronavirus pandemic. (Tasos Katopodis/Pool/EPA-EFE/REX/Shutterstock)

By Rachel Siegel

Federal Reserve officials raised concerns about additional waves of coronavirus infections disrupting an economic recovery and triggering a new spike in unemployment and a worse economic downturn, according to minutes released Wednesday by the central bank about its June 9-10 meeting.

Fed Chair Jerome H. Powell has repeatedly said that the path out of this recession, which began in February, will depend on containing the virus and giving Americans the confidence to resume normal working and spending habits. But the notes from the two-day meeting reveal how interconnected Fed officials view a prolonged economic recession and the pandemic’s continued spread — and why Powell often asserts that lawmakers will need to do more to carry millions of Americans out of this crisis.

“In light of the significant uncertainty and downside risks associated with the pandemic, including how much the economy would weaken and how long it would take to recover, the staff judged that a more pessimistic projection was no less plausible than the baseline forecast,” the minutes read. “In this scenario, a second wave of the coronavirus outbreak, with another round of strict limitations on social interactions and business operations, was assumed to begin later this year, leading to a decrease in real GDP, a jump in the unemployment rate, and renewed downward pressure on inflation next year.”  Read more >>