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Here’s What to Watch at the Fed’s June Meeting Fed Leaves Rates Unchanged and Projects Years of High Unemployment
(about 7 hours later)
WASHINGTON — The Federal Reserve is widely expected to leave interest rates near zero on Wednesday while pledging to continue buying bonds, but economists are watching for any hint about how the central bank might adjust policy in the longer run. WASHINGTON — The Federal Reserve left interest rates unchanged and near zero at its meeting Wednesday as the central bank projected high unemployment for several years and a long slog back from the pandemic-induced recession.
Officials are set to release their first set of economic projections of 2020, having skipped the quarterly summary in March as the pandemic gripped the United States, sowing uncertainty. The forecasts will show how they expect unemployment, inflation and growth to shape up in the years ahead. In their first economic projections this year, Fed officials indicated that they expect the unemployment rate to end 2020 at 9.3 percent and remain elevated for some time, coming in at 5.5 percent in 2022. That would be well above the level they expect to prevail over the longer run in a healthy economy and far above the historically low jobless rates that preceded the virus.
Many Fed watchers expect officials to use the interest rate projections and their post-meeting statement, released at 2 p.m., to clearly signal that borrowing costs will remain at rock-bottom for some time. Policymakers could also use the statement to make clear they will try to goose the economy through their bond-buying program. The Fed has been snapping up government-backed bonds to keep markets functioning normally, but conditions have calmed, so they could make that program explicitly focused on stimulating the economy. ”Many millions have lost their jobs,” Fed Chair Jerome H. Powell said at a news conference following the Fed’s two-day policy meeting, adding the extent of the downturn and pace of the recovery remain “extraordinarily uncertain.”
But the more significant moment may come when Fed Chair Jerome H. Powell holds a web-based news conference at 2:30 p.m. While he has sounded wary about the path ahead, analysts are curious to hear his take on the economy as states gradually open and the job market stages an early rebound. Mr. Powell said the Fed will do “whatever we can, and for as long as it takes” to support the recovery and “limit lasting damage” to the economy.
“At a minimum, I imagine he’s encouraged that the recovery process has started,” said Michelle Meyer, head of U.S. economics at Bank of America, but he will most likely remain cautious. “What kind of damage has been done to the labor market, to small business?” That includes keeping rates near rock-bottom for the foreseeable future, Mr. Powell said, noting there would likely be no rate increase through at least 2022.
He could also provide further information about the Fed’s emergency lending facilities, many of which are backed by a $454 billion pot of money Congress appropriated. “We do think that this is going to take some time — I think most forecasters believe that,” Mr. Powell said.
Here’s what to watch. The Fed is projecting a particularly sharp economic hit in 2020, with officials expecting output to contract by 6.5 percent at the end of this year compared to the final quarter of 2019, before rebounding by 5 percent in 2021.
The Fed’s last statement, released in late April, declared that the Fed “is committed to using its full range of tools” to support the U.S. economy, a pledge officials are likely to uphold this time around. The new forecasts predict a far slower path back to economic strength than the Trump administration — and perhaps the stock market — seems to expect as the economy climbs out of a virus-spurred downturn. The Fed skipped its quarterly economic summary in March as the pandemic gripped the United States, sowing uncertainty as business activity came to a near standstill.
The central bank has already taken drastic actions to support the U.S. economy. Officials cut interest rates to near-zero in back-to-back emergency meetings in early March, announced an unlimited bond-buying program to restore order in troubled government debt markets, and have since unveiled a range of emergency lending programs to keep credit flowing through the economy. On Wednesday, it painted a grim picture of the path ahead, with millions remaining out of work for the next several quarters and gross domestic product embarking on a slow climb from its trough.
Many of those lending efforts, backed by money from the $2 trillion economic stimulus bill, go even further than the Fed did during the 2008 financial crisis. Two programs buy corporate debt, one buys municipal debt, and the so-called Main Street program will make loans via banks to midsize businesses. “The ongoing public health crisis will weigh heavily on economic activity, employment and inflation in the near term, and poses considerable risks to the economic outlook over the medium term,” the Fed said in the post-meeting statement that accompanied the data outlook.
But economists think the Fed could still do more. It could make its bond-buying program, commonly called “quantitative easing,” explicitly focused on stimulating the economy, rather than just keeping markets functioning. That change would send a signal that the program is poised to continue even as market conditions return to normal. Officials could also specify a monthly pace, instead of the open-ended purchasing underway now. In addition to keeping borrowing costs low, the Fed pledged to continue buying government-backed debt “at least at the current pace” to sustain smooth market functioning, though they would “closely monitor developments” and were prepared to adjust those plans “as appropriate.”
“We think they are more likely than not ready to announce a concrete pace,” Ms. Meyer said. “They will want to nail it down.” The last time the Fed released projections was in December, when officials expected 2020 unemployment to close out at 3.5 percent with 1.9 percent inflation and 2 percent growth.
Some expect that the Fed could also institute more formal “forward guidance,” in which officials pledge to keep rates low for either a specific time period or until a certain economic goal — like a level of unemployment — is achieved. But many think they will wait and institute those changes later this year, after they have finished a policy strategy review that was underway when the pandemic hit the economy. The coronavirus upended that outlook. Unemployment rocketed to 14.7 percent in April before easing to 13.3 percent in May. Economic activity tanked so sharply as states issued stay-at-home orders in March and April that the National Bureau of Economic Research announced this week that the United States entered a recession after the economy peaked in February.
“Our read on the tea leaves is that they haven’t completed the framework review, so they don’t have a consensus,” said Michael Gapen, chief U.S. economist for Barclays. The central bank’s release came hours after the Organization for Economic Cooperation and Development put out a report warning that the world economy faces the most severe downturn in a century and could experience a halting rebound.
The economic forecasts will be a major focus given that the last time they were released — December 2019 — Fed officials were projecting 2020 unemployment to close out at 3.5 percent with 1.9 percent inflation and 2 percent growth. “Extraordinary policies will be needed to walk the tightrope towards recovery,” said Laurence Boone, the O.E.C.D.’s chief economist.
The coronavirus most likely upended those expectations. Unemployment rocketed to 14.7 percent in April before easing to 13.3 percent in May. Economic activity tanked so sharply as states issued stay-at-home orders in March and April that the National Bureau of Economic Research announced this week that the United States entered a recession after the economy peaked in February. The Fed’s caution and the O.E.C.D.’s pessimism contrasts with the more optimistic tone Treasury Secretary Steven Mnuchin took while testifying before Senators on Wednesday. He said in prepared remarks that the economy was “well-positioned for a strong, phased reopening of our country,” though he noted during the testimony itself that some sectors had sustained “significant damage.”
There is no doubt that the economy has experienced a rapid, sharp hit. The major question is how quickly the country can recover — and Wednesday’s release will offer a sense of how the Fed is thinking about that. And those messages are very different from the one coming from President Trump, who has been celebrating on Twitter as stock indexes rally.
“G.D.P. growth is obviously going to be down,” said Lewis Alexander, the U.S. chief economist at Nomura. One thing to watch is whether there is any disagreement about whether interest rates will remain near zero through 2022, which is when the year-specific forecasts end.
“The most interesting thing will be what the interest rate forecast will look like,” he said.
Mr. Powell, the Fed’s leader since early 2018, has voiced caution since the pandemic took hold. He has warned that both monetary and fiscal policy must stand ready to do more to make sure the pandemic does not permanently scar the economy, and he has been clear that the Fed does not mistake its early successes in calming markets and reinvigorating lending as giving an all-clear signal.
“While the economic response has been both timely and appropriately large, it may not be the final chapter, given that the path ahead is both highly uncertain and subject to significant downside risk,” Mr. Powell said on May 13.
But since he last spoke, some economic data has come in above expectations. Unemployment was projected to increase to around 20 percent but it declined instead. Consumer spending is rebounding, though it remains below precrisis levels, based on real-time trackers. As a result, the Fed chair might update his cautious take, economists said.
Updated June 5, 2020Updated June 5, 2020
So far, the evidence seems to show it does. A widely cited paper published in April suggests that people are most infectious about two days before the onset of coronavirus symptoms and estimated that 44 percent of new infections were a result of transmission from people who were not yet showing symptoms. Recently, a top expert at the World Health Organization stated that transmission of the coronavirus by people who did not have symptoms was “very rare,” but she later walked back that statement.So far, the evidence seems to show it does. A widely cited paper published in April suggests that people are most infectious about two days before the onset of coronavirus symptoms and estimated that 44 percent of new infections were a result of transmission from people who were not yet showing symptoms. Recently, a top expert at the World Health Organization stated that transmission of the coronavirus by people who did not have symptoms was “very rare,” but she later walked back that statement.
A study by European scientists is the first to document a strong statistical link between genetic variations and Covid-19, the illness caused by the coronavirus. Having Type A blood was linked to a 50 percent increase in the likelihood that a patient would need to get oxygen or to go on a ventilator, according to the new study.A study by European scientists is the first to document a strong statistical link between genetic variations and Covid-19, the illness caused by the coronavirus. Having Type A blood was linked to a 50 percent increase in the likelihood that a patient would need to get oxygen or to go on a ventilator, according to the new study.
The unemployment rate fell to 13.3 percent in May, the Labor Department said on June 5, an unexpected improvement in the nation’s job market as hiring rebounded faster than economists expected. Economists had forecast the unemployment rate to increase to as much as 20 percent, after it hit 14.7 percent in April, which was the highest since the government began keeping official statistics after World War II. But the unemployment rate dipped instead, with employers adding 2.5 million jobs, after more than 20 million jobs were lost in April.The unemployment rate fell to 13.3 percent in May, the Labor Department said on June 5, an unexpected improvement in the nation’s job market as hiring rebounded faster than economists expected. Economists had forecast the unemployment rate to increase to as much as 20 percent, after it hit 14.7 percent in April, which was the highest since the government began keeping official statistics after World War II. But the unemployment rate dipped instead, with employers adding 2.5 million jobs, after more than 20 million jobs were lost in April.
Mass protests against police brutality that have brought thousands of people onto the streets in cities across America are raising the specter of new coronavirus outbreaks, prompting political leaders, physicians and public health experts to warn that the crowds could cause a surge in cases. While many political leaders affirmed the right of protesters to express themselves, they urged the demonstrators to wear face masks and maintain social distancing, both to protect themselves and to prevent further community spread of the virus. Some infectious disease experts were reassured by the fact that the protests were held outdoors, saying the open air settings could mitigate the risk of transmission.Mass protests against police brutality that have brought thousands of people onto the streets in cities across America are raising the specter of new coronavirus outbreaks, prompting political leaders, physicians and public health experts to warn that the crowds could cause a surge in cases. While many political leaders affirmed the right of protesters to express themselves, they urged the demonstrators to wear face masks and maintain social distancing, both to protect themselves and to prevent further community spread of the virus. Some infectious disease experts were reassured by the fact that the protests were held outdoors, saying the open air settings could mitigate the risk of transmission.
Exercise researchers and physicians have some blunt advice for those of us aiming to return to regular exercise now: Start slowly and then rev up your workouts, also slowly. American adults tended to be about 12 percent less active after the stay-at-home mandates began in March than they were in January. But there are steps you can take to ease your way back into regular exercise safely. First, “start at no more than 50 percent of the exercise you were doing before Covid,” says Dr. Monica Rho, the chief of musculoskeletal medicine at the Shirley Ryan AbilityLab in Chicago. Thread in some preparatory squats, too, she advises. “When you haven’t been exercising, you lose muscle mass.” Expect some muscle twinges after these preliminary, post-lockdown sessions, especially a day or two later. But sudden or increasing pain during exercise is a clarion call to stop and return home.Exercise researchers and physicians have some blunt advice for those of us aiming to return to regular exercise now: Start slowly and then rev up your workouts, also slowly. American adults tended to be about 12 percent less active after the stay-at-home mandates began in March than they were in January. But there are steps you can take to ease your way back into regular exercise safely. First, “start at no more than 50 percent of the exercise you were doing before Covid,” says Dr. Monica Rho, the chief of musculoskeletal medicine at the Shirley Ryan AbilityLab in Chicago. Thread in some preparatory squats, too, she advises. “When you haven’t been exercising, you lose muscle mass.” Expect some muscle twinges after these preliminary, post-lockdown sessions, especially a day or two later. But sudden or increasing pain during exercise is a clarion call to stop and return home.
States are reopening bit by bit. This means that more public spaces are available for use and more and more businesses are being allowed to open again. The federal government is largely leaving the decision up to states, and some state leaders are leaving the decision up to local authorities. Even if you aren’t being told to stay at home, it’s still a good idea to limit trips outside and your interaction with other people.States are reopening bit by bit. This means that more public spaces are available for use and more and more businesses are being allowed to open again. The federal government is largely leaving the decision up to states, and some state leaders are leaving the decision up to local authorities. Even if you aren’t being told to stay at home, it’s still a good idea to limit trips outside and your interaction with other people.
Touching contaminated objects and then infecting ourselves with the germs is not typically how the virus spreads. But it can happen. A number of studies of flu, rhinovirus, coronavirus and other microbes have shown that respiratory illnesses, including the new coronavirus, can spread by touching contaminated surfaces, particularly in places like day care centers, offices and hospitals. But a long chain of events has to happen for the disease to spread that way. The best way to protect yourself from coronavirus — whether it’s surface transmission or close human contact — is still social distancing, washing your hands, not touching your face and wearing masks.Touching contaminated objects and then infecting ourselves with the germs is not typically how the virus spreads. But it can happen. A number of studies of flu, rhinovirus, coronavirus and other microbes have shown that respiratory illnesses, including the new coronavirus, can spread by touching contaminated surfaces, particularly in places like day care centers, offices and hospitals. But a long chain of events has to happen for the disease to spread that way. The best way to protect yourself from coronavirus — whether it’s surface transmission or close human contact — is still social distancing, washing your hands, not touching your face and wearing masks.
Common symptoms include fever, a dry cough, fatigue and difficulty breathing or shortness of breath. Some of these symptoms overlap with those of the flu, making detection difficult, but runny noses and stuffy sinuses are less common. The C.D.C. has also added chills, muscle pain, sore throat, headache and a new loss of the sense of taste or smell as symptoms to look out for. Most people fall ill five to seven days after exposure, but symptoms may appear in as few as two days or as many as 14 days.Common symptoms include fever, a dry cough, fatigue and difficulty breathing or shortness of breath. Some of these symptoms overlap with those of the flu, making detection difficult, but runny noses and stuffy sinuses are less common. The C.D.C. has also added chills, muscle pain, sore throat, headache and a new loss of the sense of taste or smell as symptoms to look out for. Most people fall ill five to seven days after exposure, but symptoms may appear in as few as two days or as many as 14 days.
If air travel is unavoidable, there are some steps you can take to protect yourself. Most important: Wash your hands often, and stop touching your face. If possible, choose a window seat. A study from Emory University found that during flu season, the safest place to sit on a plane is by a window, as people sitting in window seats had less contact with potentially sick people. Disinfect hard surfaces. When you get to your seat and your hands are clean, use disinfecting wipes to clean the hard surfaces at your seat like the head and arm rest, the seatbelt buckle, the remote, screen, seat back pocket and the tray table. If the seat is hard and nonporous or leather or pleather, you can wipe that down, too. (Using wipes on upholstered seats could lead to a wet seat and spreading of germs rather than killing them.)If air travel is unavoidable, there are some steps you can take to protect yourself. Most important: Wash your hands often, and stop touching your face. If possible, choose a window seat. A study from Emory University found that during flu season, the safest place to sit on a plane is by a window, as people sitting in window seats had less contact with potentially sick people. Disinfect hard surfaces. When you get to your seat and your hands are clean, use disinfecting wipes to clean the hard surfaces at your seat like the head and arm rest, the seatbelt buckle, the remote, screen, seat back pocket and the tray table. If the seat is hard and nonporous or leather or pleather, you can wipe that down, too. (Using wipes on upholstered seats could lead to a wet seat and spreading of germs rather than killing them.)
Taking one’s temperature to look for signs of fever is not as easy as it sounds, as “normal” temperature numbers can vary, but generally, keep an eye out for a temperature of 100.5 degrees Fahrenheit or higher. If you don’t have a thermometer (they can be pricey these days), there are other ways to figure out if you have a fever, or are at risk of Covid-19 complications.Taking one’s temperature to look for signs of fever is not as easy as it sounds, as “normal” temperature numbers can vary, but generally, keep an eye out for a temperature of 100.5 degrees Fahrenheit or higher. If you don’t have a thermometer (they can be pricey these days), there are other ways to figure out if you have a fever, or are at risk of Covid-19 complications.
The C.D.C. has recommended that all Americans wear cloth masks if they go out in public. This is a shift in federal guidance reflecting new concerns that the coronavirus is being spread by infected people who have no symptoms. Until now, the C.D.C., like the W.H.O., has advised that ordinary people don’t need to wear masks unless they are sick and coughing. Part of the reason was to preserve medical-grade masks for health care workers who desperately need them at a time when they are in continuously short supply. Masks don’t replace hand washing and social distancing.The C.D.C. has recommended that all Americans wear cloth masks if they go out in public. This is a shift in federal guidance reflecting new concerns that the coronavirus is being spread by infected people who have no symptoms. Until now, the C.D.C., like the W.H.O., has advised that ordinary people don’t need to wear masks unless they are sick and coughing. Part of the reason was to preserve medical-grade masks for health care workers who desperately need them at a time when they are in continuously short supply. Masks don’t replace hand washing and social distancing.
If you’ve been exposed to the coronavirus or think you have, and have a fever or symptoms like a cough or difficulty breathing, call a doctor. They should give you advice on whether you should be tested, how to get tested, and how to seek medical treatment without potentially infecting or exposing others.If you’ve been exposed to the coronavirus or think you have, and have a fever or symptoms like a cough or difficulty breathing, call a doctor. They should give you advice on whether you should be tested, how to get tested, and how to seek medical treatment without potentially infecting or exposing others.
If you’re sick and you think you’ve been exposed to the new coronavirus, the C.D.C. recommends that you call your healthcare provider and explain your symptoms and fears. They will decide if you need to be tested. Keep in mind that there’s a chance — because of a lack of testing kits or because you’re asymptomatic, for instance — you won’t be able to get tested.If you’re sick and you think you’ve been exposed to the new coronavirus, the C.D.C. recommends that you call your healthcare provider and explain your symptoms and fears. They will decide if you need to be tested. Keep in mind that there’s a chance — because of a lack of testing kits or because you’re asymptomatic, for instance — you won’t be able to get tested.
He is also likely to field questions about the Fed’s various credit programs. The central bank’s corporate bond-buying and municipal bond purchases only recently started, and it announced just this week that it would expand its Main Street program to reach a broader array of business borrowers. Still, questions linger about how widely the programs will be used — and how officials will judge whether they have been successful. “NASDAQ HITS ALL-TIME HIGH. Tremendous progress being made, way ahead of schedule. USA!” he wrote on Twitter earlier on Wednesday.
Mr. Powell could also address questions about whether the virus poses risks to the global financial system, including banks. Mr. Powell has emerged as a voice of economic caution since the pandemic took hold. He has warned that both monetary and fiscal policy must stand ready to do more to make sure the pandemic does not permanently scar the economy, and he has been clear that the Fed does not mistake its early successes in calming markets and reinvigorating lending as giving an all-clear signal.
Officials at the Fed’s April meeting “were concerned that banks could come under greater stress, particularly if adverse scenarios for the spread of the pandemic and economic activity were realized,” the minutes of the gathering showed. Those risks were “exacerbated by high levels of indebtedness” among corporations. “While the economic response has been both timely and appropriately large, it may not be the final chapter, given that the path ahead is both highly uncertain and subject to significant downside risk,” Mr. Powell said on May 13.
Large banks have just completed their annual “stress tests,” which gauge their ability to weather a downturn and determine how much capital they need to hold to absorb losses. Mr. Powell could offer more details about the pandemic-specific scenarios that were quickly incorporated into the 2020 examinations. Since then, some data points have come in above expectations. Unemployment was projected to increase to around 20 percent but it declined instead. Consumer spending is rebounding, though it remains below its level before the virus, based on real-time trackers.
Some officials have said that the Fed Board in Washington — which oversees bank regulation — should prevent the largest banks, which have voluntarily suspended share buybacks, from paying out dividends. Randal K. Quarles, the Fed’s vice chair for supervision, has suggested that they are waiting to see the stress test results before making that call. The central bank has taken extraordinary steps already to support the U.S. economy. The Fed cut interest rates to near zero in a series of back-to-back meetings in March. It has been snapping up government-backed bonds to keep markets functioning normally, and has rolled out a series of emergency credit programs aimed at ensuring that businesses and state and local governments can borrow money.
“Our regulatory framework requires us to do that analysis, and that will determine the ability of the banks to conserve capital,” Mr. Quarles said in May. .
Results of the 2020 “stress tests” will be released on June 25, the Fed said on Tuesday.