The American central bank is holding its economic meeting on Tuesday and Wednesday, at the very moment when the worrying new rise in coronavirus cases in the United States has forced a large part of the country to close its businesses and resume containment measures.
The new closures were feared in the business community, but the US Federal Reserve (Fed) is unlikely to take any specific action this week.
“The subject should not be mentioned in the press release,” which will be published on Wednesday after the meeting, anticipates Mickey Levy, chief economist at Berenberg Markets, interviewed by AFP.
President Jerome Powell could address it at the following press conference, and assure that the Fed “is ready to act if necessary to provide more support to the economy”, he thinks.
The United States was optimistic in June. The rapid reopening of shops, restaurants and beaches, under the leadership of President Donald Trump, had restarted consumption, the engine of the American economy. Unemployment, lower than expected in May, even began to decline in June.
But contaminations started to rise again from the end of the month. California, Florida, Texas … Many states have had to back down.
The layoffs of employees kept year after year since the end of March, or freshly rehired, even pushed up jobless claims in mid-July, for the first time since the end of March.
Anthony Fauci, immunologist and White House adviser, urged worst-affected states not to reopen their economies on Friday in an interview with Washington Post.
Uncertainty
“The Fed will stress the uncertainty of forecasts”, but it “will not change policy,” adds Mickey Levy.
Since March, the Fed has implemented multiple measures to allow the economy to continue to function.
“It should not come out much of this meeting,” also anticipates Jonathan Millar, economist for the investment bank Barclays.
Nothing to predict in any case on the side of interest rates: the Fed had lowered them to zero in mid-March in the face of the advance of the pandemic and the generalization of containment measures in the United States.
The people in charge of the institution have never stopped repeating that they would leave them at this level, as long as the economy has not come out of this crisis.
As for adopting negative rates, as the Swiss and Japanese central banks have done, all have swept aside this hypothesis, which is “not suited to the context of the United States”.
Markets unanimously expect rates to stay in their current range of 0 to 0.25%, according to the valuation of CME Group’s futures products.
Negotiations in Congress
“We expect President Powell to remain very careful. It will continue to underline the + considerable risks weighing on the economic outlook in the medium term + ”, also estimates Kathy Bostjancic, of Oxford Economics.
She also believes that “he will support the efforts of Congress”, which are currently negotiating additional aid, including the extension of aid to the unemployed, new loans for SMEs, another check for individuals and funds to allow schools to reopen.
Could the Fed recommend wearing a mask, as several of its officials have already done? “I would be surprised if they made such a political statement,” replied Jonathan Millar.
Several airlines, supermarket chains and even McDonald’s restaurants have very recently made it compulsory for their customers to wear masks.
This subject has become a political marker in the United States. Donald Trump, who advocated freedom and refused to wear one in public, now recommends it.
The Fed forecasts a 6.5% drop in US GDP in 2020, before a strong rebound of 5% in 2021 and more modest growth (3.5%) in 2022.
GDP fell 4.8% in the first quarter. The one for the second quarter will be released on Thursday.
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