“In light of the significant uncertainty and downside risks associated with the pandemic, including how much the economy would weaken and how long it would take to recover, the staff judged that a more pessimistic projection was no less plausible than the baseline forecast,” the minutes read. “In this scenario, a second wave of the coronavirus outbreak, with another round of strict limitations on social interactions and business operations, was assumed to begin later this year, leading to a decrease in real GDP, a jump in the unemployment rate, and renewed downward pressure on inflation next year.”
On June 10, when this Fed meeting concluded, there were 20,456 new coronavirus cases in the United States that day, according to a Washington Post analysis. The situation has deteriorated markedly since then, and 44,474 new cases were reported Tuesday. Anthony S. Fauci, the government’s top infectious-disease specialist, warned this week that the country could soon face 100,000 new coronavirus cases a day “if this does not turn around.”
Notably, the Fed’s discussion about these concerns came before the big surge in coronavirus cases in the past two weeks. The latest surge has forced California, Florida and Texas to reimpose restrictions on restaurants and bars, and nine other states have postponed or scaled back reopening plans. The reversal means that many Americans — including hourly and low-wage service employees — have been kicked out of the workplace for a second time.
That grim reality is colliding with what experts have dubbed a “fiscal cliff,” when the $600-per-week increase in unemployment benefits expires at the end of this month. Congress is facing multiple decisions about how or whether to extend government aid this summer. Powell has often said that more congressional action is likely to be needed to provide direct relief to struggling households and businesses.
Powell and other Fed officials stop short of outlining exactly what they think lawmakers should do in a new stimulus package or other legislation. But the meeting minutes underscore what the central bank’s leaders have said in public, which is that the Fed’s tools can do only so much.
the Fed has propped up many emergency programs to support the markets and extend loans to municipalities and small and midsize businesses. But the central bank has authority only to lend — not spend. Testifying before the House Financial Services Committee on Tuesday, Powell said that for many companies and industries desperate for help, “more debt may not be the answer here."
Among the risks noted by Fed officials at the June meeting: “Fiscal support for households, businesses, and state and local governments might prove to be insufficient.”
Still, those concerns are much different from the forecast the White House has offered, as President Trump has predicted a sharp increase in economic growth. This week, senior White House economist Larry Kudlow said that the “overwhelming” evidence pointed to a V-shaped recovery.
Powell has hesitated to say precisely what type of bounce back — including a V, U or W-shaped recovery — the country could face, and he emphasizes that the situation remains extraordinarily uncertain.
But the Fed has taken steps to incorporate a range of possibilities, including more dire ones, into its emergency response. Last week, the Fed released new data on how the country’s largest banks would fare under those three scenarios and concluded that if there is a slower, U-shaped recovery or a W-shaped scenario, several financial firms “would approach minimum capital levels.”
Others within the central bank have been more direct. In an interview with The Post on Wednesday, Mary C. Daly, president of the San Francisco Federal Reserve Bank, said she “would hesitate to call this a recovery” and specifically said the country was not in a V-shaped rebound.
the Fed’s June meeting took place just weeks after George Floyd, a black man in Minneapolis, died in police custody, spurring nationwide protests against racism and American policing approaches. With the protests came a broader reckoning over racial inequalities that permeate the American economy, especially for communities of color, which are most vulnerable to the current recession.
Powell has frequently been asked whether the Fed should specifically consider the black unemployment rate, or whether the central bank’s programs widen economic disparities rather than repair them. His frequent response is that the Fed’s emergency programs are meant to protect American jobs and that if unemployment can return to its historically low, pre-pandemic levels, minority workers will especially benefit.
“Injustice, prejudice, and the callous disregard for life had led to social unrest and a sense of despair,” the Fed minutes said.
Heather Long contributed to this report.