- Minutes from the Federal Reserve’s April meeting detailed key risks facing the economy as coronavirus lockdowns dragged on.
- Members of the Federal Open Market Committee found that a “more pessimistic projection was no less plausible” than a base case that featured economic growth re-emerging in the second half of the year.
- Such a scenario would arrive on the back of a second wave of COVID-19 cases and feature a decrease in GDP, surging unemployment, and weak inflation lasting into 2021, the participants warned.
- Members also noted the FOMC might need to provide greater detail around its asset purchases, as the unwinding of such relief programs could fuel market turmoil.
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Minutes from the Federal Reserve’s April meeting released Wednesday highlighted key risks emerging throughout the US as lockdowns pushed forward.
Members of the Federal Open Market Committee noted that “extremely elevated” uncertainty surrounding the outbreak rendered previous downturns far less helpful in modeling for the future. The central bank judged that a “more pessimistic projection was no less plausible” than a base case that featured a recovery taking place through the second half of 2020.
“In this scenario, a second wave of the coronavirus outbreak, with another round of strict restrictions on social interactions and business operations, was assumed to begin around year-end, inducing a decrease in real GDP, a jump in the unemployment rate, and renewed downward pressure on inflation next year,” the central bank said.
All US states have since begun partial reopenings as the outbreak drags into its third month. While some states warn that hasty returns to normal threaten a resurgence in COVID-19 infections, others have expedited their reopenings to aid struggling economies.
The meeting ended with Fed officials leaving interest rates near zero and continuing the purchase of Treasurys and mortgage-backed securities. Several committee members “were concerned that banks could come under greater stress,” the minutes showed.
Chair Jerome Powell followed the meeting with a bleak press conference in which he warned of permanent economic fallout sourced from the pandemic. The central bank chief has since announced that all nine of the Fed’s lending programs will be operational by June, and reiterated that the authority would use all of its tools to bridge the virus recession.
The Fed’s meeting arrived before a dismal April jobs report revealed 20.5 million payrolls erased and the unemployment rate skyrocketed to 14.7%. Meeting participants said weekly jobless claims pointed to “an extreme decline in employment” and feared that temporary layoffs would turn permanent against the weakened backdrop. More than 18.1 million Americans classified their job loss as temporary in the April report.
The central bank’s staff addressed fears of uncertainty around the Fed’s policy actions as well. Several participants noted that the FOMC might need to provide greater detail around its asset purchases. Several market experts have more recently warned that the Fed’s unwinding of key relief programs could fuel fresh market volatility.
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