The Federal Reserve (Fed) has released a negative omen for the economy in the coming years this Wednesday. The United States will not manage to leave the unemployment rate below 5%, at least, until 2023. “We went from the lowest level of unemployment in the last 50 years to the highest in two months,” said the president of the US central bank. Jerome Powell. In the last five years, unemployment in the world power had always been below that 5% barrier.
The Fed believes that the United States will close this year with 9.3% unemployment, a percentage that will fall to 6.5% in 2021 and 5.5% in 2022. These are estimates that do not show the rapid recovery they had. some investors. “Unemployment did not affect all Americans equally,” Powell said, noting that of the more than 20 million jobs destroyed since February, the most affected have been African Americans, Latinos, and women.
The central bank also believes that the US economy will experience a 6.5% contraction this year due to the self-imposed stoppage to prevent the spread of the coronavirus. The Fed keeps the interest rate close to zero, in a range between 0% and 0.25%, rates that will not rise until at least the end of 2022. “We are going to use our tools until the economy is completely recovered. We are not thinking of raising rates, “said Powell.
This Wednesday’s announcement closely resembles that of the end of April, when the regulator made it clear that it did not expect to touch the price of money. Rates will not rise until Powell and his team are confident that the economy has “weathered recent events” and is on track to meet its “price and employment stability targets,” the central bank said in a statement on Wednesday. Titanic bond purchase programs will also continue “at least at the current rate” for the foreseeable future.
Some investors are confident that the recovery in the economy will develop in a V-shape: sharp drop, sharp rise. President Donald Trump believes that the evolution will be even more positive. “It will be better than a V. It will be a rocket. They talk about whether it’s a V, a U, or an L. They have no idea. They are also wrong, ”said the Republican president last week when the May unemployment rate was released, which, against all odds, stood at 13.3%. The most pessimistic estimates were that unemployment could reach 20%, but the creation of 2.5 million jobs allowed the percentage to drop from 14.7% in April, the highest rate recorded since the Great Depression.
The American economy is now beginning to activate, with a gradual opening in the 50 states of the country. Despite the fact that the unemployment rate is still very high compared to the historical low of 3.5% reached in February, the fall in May offered the first sign that the collapse of the labor market caused by the coronavirus would have already hit bottom. Treasury Secretary Steven Mnuchin said yesterday that the next stimulus package should be aimed at helping industries most affected by the pandemic and that the focus should be on creating incentives for the unemployed to be rehired.
End of the longest growing period
In the latest Federal Reserve report in late April, the agency warned that the worst effects of the pandemic were yet to come. Jerome Powell warned of an “unprecedented” fall in the economy in the second quarter, and the possibility that it would take more public aid than injected so far to regain activity. Analysts anticipate that the fall in GDP in the second quarter will be around 20% in annualized terms. The first three months fell by 1.2%, equivalent to a 4.8% fall in the annualized quarterly rate.
Earlier this week it was revealed that the United States officially went into recession in February due to the coronavirus, according to the National Bureau of Economic Research. The pandemic ended the longest period of growth in US history. The World Bank released Monday that it expects the global economy to face the worst recession since World War II and that the US GDP will contract 6% this year.
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