What’s on their mind
The Federal Reserve released meeting minutes from its March meetings when the FOMC basically cut interest rates to 0%. A few weeks ago, they were looking at two plausible scenarios for the US economy – a recovery in the second half of this year or a recovery that wouldn’t really take hold until next year. Under both scenarios, inflation falls (core inflation fell in March for the first time since Jan 2010) and unemployment rises.
Moral of the story: The Fed’s mandates include price stability (managing inflation around 2%) and full employment. Both of those pieces are getting blown up right now and the Fed is actually doing a fantastic job at responding with unprecedented speed to support the economy. A recovery in the second half of this year could have been possible if we had seen a much more controlled and stricter shutdown nationally to curtail the spread of the virus, but is seems to be a fairly unrealistic expectation at this point given the new case numbers.
Fighting unemployment trillions of dollars at a time
The Fed unveiled yet another program this week to insert $2.3T into the economy. The program will provide loans up to $25M for medium-sized businesses (these businesses were not really helped by the CARES Act) and include purchasing $600B in loans made to these businesses (effectively taking some strain off the banking system). The program also includes loans for banks that are providing lending to small businesses through the Payroll Protection Program. Additionally, $500B in loans will be provided for local and state governments as they try to combat the virus.
Moral of the story: This specifically address the Fed’s mandate to maintain full employment – hopefully the level of liquidity being pumped into the system by the Fed and the CARES Act will soften the blow to the labor situation in this country.
The scaries keep coming
It happened again. Jobless claims came in at 6.6m for the first week in April, and the prior week’s number was revised upward by 219k. This brings the total jobless claims in the last three weeks to 16.8m. To put these numbers into perspective, the highest ever weekly jobless claims number before these past three weeks was 695k in 1982. This magnitude of uncertainty in employment is flowing through into consumer sentiment in a big way, which posted the biggest one-month decline in history from March to April and is currently sitting at a nine-year low.
Moral of the story: Unemployment is somewhere between 10-15% right now, which is just bonkers when you think about the 3.5% all-time low we saw just over a month ago. As this crisis drags on, consumers are becoming increasingly aware of how long it’s going to take to get back to normal (as if anyone knows what “normal” will be after all this). The damage already seems so great that a v-shaped recovery appears to be nearly impossible at this point. The good thing is that earnings season starts in two weeks and we will be getting updates from companies across the board and understand a little more clearly whether the fiscal and monetary stimulus being provided by the CARES Act and the Fed is actually going to help stop the bleeding anytime soon.