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US Fed officials expect virus will ‘weigh heavily’ on economy
US Federal Reserve Chairman Jerome Powell (File photo)
US Federal Reserve officials had expressed concern at their latest meeting over the future of the country’s economy amid the coronavirus pandemic, according to the minutes of the session.
In the Federal Open Market Committee’s meeting held in late July, the members told central bank officials that they had lowered their estimate for economic growth over the second half of the year.
Fed officials also said there had been an increase in uncertainty about the economic outlook since their prior meeting in mid-June.
They “agreed that the ongoing public health crisis would weigh heavily on economic activity, employment, and inflation in the near term and was posing considerable risks to the economic outlook over the medium term,” according to the summary.
Meanwhile, the members voted to keep short-term interest rates anchored near zero because of what they described as an economy that was falling short of its pre-pandemic levels, showed the minutes released on Wednesday.
They also reached a consensus on the need for more fiscal help from Congress, which went into recess without agreeing on a deal for more funding, as Chairman Jerome Powell and Fed leaders have emphasized the need for such help multiple times.
The minutes “underscored the need for a fiscal package,” said Quincy Krosby, chief market strategist at Prudential Financial. “Chairman Powell has been adamant that we need to see another package, especially because they see the negative effects of the slowdown.”
The committee members also expressed worries about whether banks and related institutions could continue to stay in what described by Powell and other Fed officials as generally strong shape if the coronavirus spread persists.
Weeks of record job losses leave the United States with unemployment rates not seen in decades as millions of Americans face the prospect of permanent job loss.
“Participants generally agreed that prospects for further substantial improvement in the labor market would depend on a broad sustained reopening of businesses. In turn, such a reopening would depend in large part on the efficiency of health measures to limit the spread of the virus,” the minutes said.
The pandemic has left the federal government $26.6 trillion in debt, but it is gaining just more than $3 trillion during the pandemic as Congress and the White House are desperately trying to get aid to those impacted by the economic shutdown.
Following the release of the minutes, Richmond Fed President Thomas Barkin said uncertainty “matters a lot for players in the economy.”
Blue collar workers “seem frozen in place” Barkin said in a talk to the National Economists Club, noting, “We are at a very vulnerable spot, and I don’t know what the next shoe to drop will be.”
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