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Home / Business / The Fed faces a viral wave, creating risks of recovery

The Fed faces a viral wave, creating risks of recovery



(Reuters) – In a rapidly changing global pandemic, US Federal Reserve officials did not expect this when their forecasts showed protected optimism about a sharp early economic recovery and sustained slow growth.

PHOTO: Federal Reserve Chairman Jerome Powell, wearing a face mask, testifies before the House Financial Services Committee during a hearing on the Department of the Treasury and the Fed’s response to an outbreak of coronavirus disease (COVID-19) on Capitol Hill in Vas , USA, June 30, 2020. Tasos Katopodis / Pool via REUTERS

Over the next seven weeks, much went down.

The coronavirus pandemic has intensified and caused new economic constraints. The data indicate a possible slowdown in business and employment. And so far, suspended talks in Washington on further government relief have pushed the country to the brink of spending.

(GRAPHIC – Fed faces new wave Fed meets new wave: here)

In short, the risks to US recovery have increased significantly, and a new statement on Fed policy, which will be released on Wednesday afternoon, will show how seriously the US central bankers assess them. On Tuesday, the Fed has already made one nod to the forecast, extending from September 30 to December 31 the availability of existing emergency lending programs created at the beginning of the pandemic, when hopes for a speedy recovery in the form of V was still strong.

(GRAPHICS – Tighten the screws? Tighten the screws ?: here)

Fed officials “have always feared that a rapid rediscovery would lead to a resurgence of viruses that would limit recovery,” said Krishna Guha, vice president of ISI Evercore. Now that the disease has grown into summer, the Fed is “struggling with whether it’s a short-term or long-term leap, and what the implications are for its policies.”

The policy statement will be issued at 14:00 EDT (1800 GMT), and Fed Chairman Jerome Powell is scheduled to hold a press conference in half an hour. There will be no new economic forecasts at this meeting.

The Fed is not expected to announce important policy decisions on Wednesday. Officials may point to the expected shift this fall in how it views its inflation target, or start setting clear targets for unemployment or inflation to be achieved before it considers raising interest rates from the current near-zero level.

The goal-oriented leadership seemed to be a supporter of policymakers in line with the minutes of the June Fed meeting, and several Fed analysts said they expected this to be announced at the September meeting of the Federal Open Market Committee.

But with a dozen new programs developed since March to combat the economic consequences of the pandemic, the Fed is watching the economy and developments.

These measures were aimed largely at emergency economic support, which probably registered in the historical period in April-June. The first estimates of gross domestic product growth for this period will be published on Thursday, and the average estimate of economists surveyed by Reuters is an annual decline of 34%.

In addition, recent data suggest that hopes for a rebound, which began with an unexpected round of recruitment in May and June, may become viable – motivating the Fed to expand its emergency programs at least until the end of the year.

The official unemployment rate fell from 14.7% in April to 11.1%, for example, in June, but a poll by the Dallas Federal Reserve since then, as well as a new St. Louis Federal Reserve employment forecast, both suggest cutting jobs. month. Last week, new unemployment insurance requirements rose for the first time since March.

(GRAPHIC – Decrease in jobs in July ?: here)

“The spike in viral cases is really sucking oxygen out of a sound economic recovery,” which seemed to have formed in May and June, wrote West Anders Bank chief economist Scott Anderson in an analysis on July 24.

It is also worrying that several key measures approved at the start of the pandemic are trying to strengthen families and businesses, ending with perhaps the most – $ 600 a week, in addition to unemployment insurance benefits. Members of Congress are discussing a possible extension, but the benefits end this week, generally a sign that the pandemic is on a different schedule than the one envisioned by elected leaders when they approved the initial pandemic relief package.

Today, about 30 million people receive unemployment benefits and spend $ 18 billion a month on disposable income. In addition to the $ 520 billion provided to small businesses under the payroll protection program, many businesses and families have been able to withstand costs, pay rent and mortgage, and hold on to what would be a much worse economic shock.

Because the Fed is in line with the results of negotiations in Congress for further relief, another risk remains, another human-controlled risk to the economic landscape.

PHOTO: A man rides a bicycle in front of the Federal Reserve Building on Constitution Avenue in Washington, DC, USA, March 27, 2019. Reuters / Brendan McDermid / Photo File

“If these programs are not continued, layoffs may increase and job growth may slow further. While the downturn has been sharp, the recovery of the labor market is expected to be a long, uneven slogan, ”Anderson said.

Consumers may already be ready to fasten. The Consumer Expectations Index of the Conference Council fell sharply in July. Major states such as Florida, Texas and California have seen significant cuts, which “were undoubtedly the result of the resurgence of COVID-19,” poll director Lynn Franco said on Tuesday.

“Looking ahead, consumers have become less optimistic about the short-term prospects of the economy and the labor market and remain uncompromising about their financial prospects. Such uncertainty in the short term is not good for recovery, as well as for consumer spending, “she said.

Report by Howard Schneider; Edited by Dan Burns and Andrea Ricci

Our standards:Principles of trust Thomson Reuters.

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