Fed Minutes Highlight Uncertainty, Risks Created By Coronavirus Pandemic

By | May 20, 2020
InstaForex
Fed Minutes Highlight Uncertainty, Risks Created By Coronavirus Pandemic

In addition to the severely adverse near-term effects of the coronavirus pandemic, the minutes of the Federal Reserve’s latest monetary policy meeting noted the outbreak and the measures undertaken to contain it have also created an extraordinary amount of uncertainty and considerable risks to economic activity in the medium term.

The minutes said participants at the late-April meeting discussed several alternative scenarios with regard to the behavior of economic activity in the medium term that all seemed about equally likely.

“These scenarios differed in the assumed length of the pandemic and the consequent economic disruptions,” the Fed said.

A number of participants believed there was a substantial likelihood of additional waves of the coronavirus outbreak, which could lead to further economic disruptions.

The participants warned the disruptions, including additional periods of mandatory social distancing, greater supply chain dislocations, and a substantial number of business closures and loss of income, could lead to a protracted period of severely reduced economic activity.

At the same time, the minutes noted economic activity could recover more quickly if the pandemic subsided enough for households and businesses to become sufficiently confident to relax or modify social-distancing behaviors over the next several months.

“Participants stressed that measures taken in the areas of health-care policy and fiscal policy, together with actions by the private sector, would be important in shaping the timing and speed of the U.S. economy’s return to more normal conditions,” the Fed said.

The central bank added, “In addition, participants agreed that recent actions taken by the Federal Reserve were essential in helping reduce downside risks to the economic outlook.”

Meanwhile, the minutes noted the pandemic also poses several risks to long-term economic performance, including that workers who lose employment may experience a loss of skills, lose access to adequate childcare or eldercare, or become discouraged and exit the labor force.

The Fed said the longer-term behavior of firms could be affected as well, while a few participants warned higher levels of government indebtedness could put downward pressure on growth in aggregate potential output.

Following the meeting, the Fed decided to maintain the target range for the federal funds rate at 0 to 1/4 percent, as the public health crisis weighs heavily on economic activity, employment, and inflation in the near term and poses considerable risks to the economic outlook over the medium term.

The minutes reiterated the central bank is committed to using its full range of tools to support the U.S. economy in this challenging time, thereby promoting its maximum employment and price stability goals.


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