The Fed suggests the worst of this crisis is over: Morning Brief

Thu, Jun 11, 2020, 4:09 AM 4 min read

But that the road to recovery remains very long and challenging.

For over a month now, we’ve heard from economists and strategists that the worst of the pandemic-induced economic downturn may be over.

And the Federal Reserve on Wednesday said that they, too, see this as a possibility.

“The coronavirus outbreak is causing tremendous human and economic hardship across the United States and around the world,” the Fed said in its latest policy statement published Wednesday. “The virus and the measures taken to protect public health have induced sharp declines in economic activity and a surge in job losses.” (Emphasis added.)

In April, the Fed’s statement read: “The virus and the measures taken to protect public health are inducing sharp declines in economic activity and a surge in job losses.” (Emphasis added.)

This shift in tense — flagged by Luke Kawa on Twitter — signals that the Fed sees the most acute phase of the crisis as likely having passed.

“In recent weeks, some indicators suggest a stabilization or even a modest rebound in some segments of the economy,” Powell said Wednesday. Though as Powell elaborated during a nearly hour-long press conference Wednesday afternoon, this stabilization isn’t anything resembling an “all clear” for the U.S. economy.

“The extent of the downturn and the pace of recovery remain extraordinarily uncertain and will depend in large part on our success in containing the virus,” Powell added. “We all want to get back to normal, but a full recovery is unlikely to occur until people are confident that it is safe to reengage in a broad range of activities.”

On Wednesday, the Fed’s latest interest rate forecasts suggested there will be no interest rate hikes until 2023 at the earliest, a sign that anything resembling a “full recovery” in the economy is several years off.

Additionally, outlooks for GDP and unemployment suggested the economy will contract by 6.5% this year with unemployment remaining above 9% through year-end.

And as Powell said, the outlook is “extraordinarily uncertain” given volatility in the data, with the Fed chair specifically citing the May jobs report as an example of how uncertain pinning down progress in the economy remains. A re-emergence of the virus or a failure by Congress to continue supporting consumers and small businesses also pose considerable risks to the outlook.

Ian Shepherdson, chief economist at Pantheon Macroeconomics, also highlighted in a note Wednesday that the Fed’s “median forecasts seem reasonable to us, if the median underpinning assumption is that a vaccine is widely available before the middle of next year.”