Federal Reserve staff told central bank officials in late July that they would lower their estimate for economic growth in the second half of the year, according to minutes released by the Federal Open Market Committee on Wednesday.
Fed staff always present their own forecasts at the Central Bank’s eight interest rate meetings each year.
At the last meeting on 28-29 July, staff said they expected the rate of recovery in gross domestic product and the rate of decline in the unemployment rate “somewhat less robust than in the previous forecast.”
The staff blamed the delay on the increasing spread of the coronavirus since mid-June, and the delay in reopening the state of companies. Fed officials stressed in their policy statement released after the July meeting that the path of the economy would significantly depend on the course of the coronavirus pandemic.
“Participants generally agreed that the prospects for further substantial improvement in the labor market depended on a broad and lasting opening of companies. In turn, such a resurgence would largely depend on the effectiveness of health measures to limit the spread of the virus, ‘the minutes said.
The staff predicted that additional fiscal stimulus measures would be passed by Congress, but these were delayed as the two political parties jockey in favor of the November presidential election.
At the July meeting, Fed officials decided to keep interest rates at zero and to keep monthly purchases of $ 120 billion from US Treasuries and mortgage-backed securities.
Fed Chairman Jerome Powell said the central bank “does not even think about raising tariffs.”
In their talks, Fed officials noted that there has been an increase in uncertainty about the economic outlook since their previous meeting in mid-June.
Richmond Fed President Thomas Barkin said in comments after the minutes were published, uncertainty “makes a lot for players in the economy.”
Blue collar workers “look like frozen in place” and some business leaders say they have trouble finding workers, even with unemployment rates above 10%, Barkin said in an interview with the National Economists Club.
“We’re in a very vulnerable place, and I do not know what the next shoe will fall on,” Barkin said.
According to the minutes, “various” Fed officials said that additional steps for monetary clearance may be needed to strengthen the economy. “Some” said strong fiscal support would be necessary.
Going forward, “a number” of Fed officials thought the central bank should rewrite its forwarding rights. Officials are talking about placing pledges to keep interest rates low until one or more economic outcomes are reached.
But the minutes show that in July there was no pressure to reach agreement on this issue. No announcement was made about the central bank’s next meeting in September. Wall Street economists thought the Fed would be ready to update its forecast in mid-September, but recent comments from Fed officials have raised some doubts about this expectation.
Discussion of a new tool where the Fed could put a cap on interest rates then short-term rates received a mixed reception at the meeting in July, the minutes show. Many of the Fed officials who spoke on yield curve control said there were only “modest benefits” and potentially serious “costs” to the strategy, including uncertainty about how it would end once it began.
“In light of these concerns, many participants judged that revenue caps and targets were not guaranteed in the current environment, but should remain an option that the FOMC could re-evaluate in the future if circumstances change,” the minutes said.
Powell and his replacement Richard Clarida have spent most of 2019 preparing the groundwork for a change in the Fed’s strategy to keep the economy even. A key concern is that inflation has almost never reached the 2% target of the Fed since the target was adopted in 2012. Fed watchers had hoped for some details of the Fed’s new plans to hit the inflation target, but the minutes only said that officials decided a revised strategy was a good idea.
Shares lost their previous gains after the minutes were released late Tuesday with the Dow Jones Industrial Average DJIA,
trade near unchanged.
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