Last Wednesday Federal Reserve Chairman Jerome Powell said: “This (COVID-19) is the biggest shock in the U.S. and in the world in living memory. We went from the lowest level of unemployment in 50 years to the highest level in close to 90 years, and we did it in two months.”
A summary of the Fed minutes disclosed the following: The U.S. economy will decline more in 2020 than the expected rebound in 2021; unemployment will stay above 9% for the rest of the year; the Fed will keep interest rates near zero through 2022.
Chairman Powell said: “We are not thinking about raising rates. We are not even thinking about thinking about raising rates.”
In layman’s terms, our central bank is predicting a much slower recovery than we had expected because of a surge in coronavirus infections. On Friday, the Centers for Disease Control warned the U.S. might need another lockdown if coronavirus cases rise dramatically.
To support the credit markets, the Fed will purchase at least $80 billion of Treasury and $40 billion of mortgage securities monthly. The Fed is primarily interested in ensuring smooth market functioning. The 30-year mortgage dropped below 3% for the first time ever.
Powell questioned last week’s labor report that the economy unexpectedly added 2.5 million jobs in May. Powell said: “Last week’s report was a welcome surprise. We hope we get many more like it, but I think we have to be honest, that it is a long road.”
In response to the pandemic, Congress and the Trump administration approved over $3 trillion in a wide assortment of spending measures. Senate Majority Leader Mitch McConnell said on May 27 that Congress would probably have to pass another coronavirus relief bill.
Treasury Secretary Steven Mnuchin told lawmakers he supported additional aid for large and small businesses. He said to a hearing of Senate Small Business Committee: “Whatever we do going forward needs to be much more targeted particularly to the industries and small businesses that are having the most difficulty reopening.”
Markets frequently overshoot on the upside and downside.
Before Powell’s dire warning that plunged the S&P more than 8%, there has been much commentary that Wall Street has rebounded much more strongly than Main Street. The tech heavy NASDAQ hit an all time high. The S&P 500 had returned to pre-pandemic levels. Thursday’s stock market precipitous drop signaled that dark clouds remain over the global economy.
All 50 states have reopened. To cope with their crippled economies, the nation’s governors opened their economies despite warnings by epidemiologists of a second wave of cases.
To date 15 states have experienced a significant spike up in coronavirus cases.
The determination of whether a state has reopened is when its stay-at-home lifts, or once it reopens one major sector (restaurants, retail stores, and personal care businesses).
Depending upon new cases of COVID-19, governors could either broaden their reopening guidelines are impose new restrictions.
Despite unprecedented global efforts to mitigate COVID-19, its dire impact remains rampant. Optimists hope that with more than 160 potential vaccines, a viable immune response may be ready by the end of 2020.
COVID-19 casts a pall over the globe. A cure cannot arrive too quickly. Worldwide there are nearly 8 million confirmed cases and 412,000 deaths. The U.S has confirmed more than 2 million cases and 116,000 deaths.
We want to share the exultation of the long-suffering fans of the Brooklyn Dodgers. In “Boys of Summer” — the 1972 book by Roger Kahn, he highlighted the Dodgers’ travails and redemption when they won the World Series in 1955.
Like Dodger fans, we no longer want to “wait til next year.”
Originally published in the Sarasota Herald-Tribune
