COVID Economic Update: Fed Chairman Says Recovery Will Take Years

On Wednesday, September 16, Federal Reserve Chairman Jerome Powell offered his assessment of the economic recovery. The press conference offered some positive news, but also a sobering prediction that a full economic recovery will take years.1

The good news is that the Fed has cut its 2020 median unemployment rate projection to 7.6%, down from a 9.3% forecast in June. The Fed also adjusted its projected 2020 GDP reduction to 3.7%, down from a 6.5% decline that was projected in June. GDP, which stands for gross domestic product, is a broad measure of economic growth. A decline in GDP means the economy is contracting rather than expanding.1

Powell also said that the Fed had shifted its focus to employment growth rather than inflation control. That means the Fed expects to keep interest rates at or near zero until the economy is near maximum employment and inflation is projected to exceed 2%. He added that it will likely take years before the economy has reached those thresholds.1

While low interest rates may be good for borrowers and investors, Powell’s comments indicate that the Fed believes the economy is years away from a full recovery. He indicated that unemployment is still four times higher than the pre-pandemic level.1

“That just tells you that the labor market has improved, but it’s a long way from maximum employment,” Powell said.1

Stock Market Returns

The investment markets continue their recovery from the downturn that hit in March of this year. Through September 16, the indexes have the following year-to-date returns:

S&P 500: 3.39%2

DJIA: -2.90%3

NASDAQ: 20.19%4

While the markets have mostly recovered from their losses earlier in the year, volatility can strike at any time. That’s especially true should the COVID pandemic worsen or if the economy suffers continued damage. There also may be increasing uncertainty as the election approaches.

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