The Economic Rebound Is Over for FED’s Kaplan

Posted Monday, August 3, 2020 by
Skerdian Meta • 1 min read

The US economy has rebounded from the deep abyss it fell into during the lock-down months. The economy contracted by nearly a third during Q2, having posted another 5% contraction in Q1. That was the deepest recession ever, but at least the economy has been recuperating since May, when the country started to reopen.

This has improved the sentiment in financial markets, but FED’s Kaplan thinks that the recovery will be muted from now on. He might be right, since we are back to pre-covid levels and the economy wasn’t exactly shining before the coronavirus. Below are Kaplan’s comments, which are bearish for the USD:

Comments from Kaplan on Bloomberg TV

  • Fed’s Kaplan sees a muted rebound from here
  • Expects unemployment rate at 9-10% at year end unless they can manage the virus better
  • Repeats that he sees US economy shrinking 4.5-5.0% this year
  • I would far prefer that forward guidance is tied to our dual mandate. I would not be in favor of tying it to just inflation
  • “The inflation dynamic is different now” Technology-enabled disruption and globalization has changed the way inflation works, so we can run it hotter now
  • We would be wise to be cognizant and concerned about our effects on risk assets. It’s important that we emphasize that these programs will lapse
  • Fed support creates its own fragilities in the markets and we should be very cognizant of that
  • Gasoline demand has recovered to the high 80s percentages or 90% but recovery in demand has stalled
  • You’ll have a difficult oil market for the next 12 months. I think it will begin to firm late next year. US production likely to fall to 10.8 mbpd at year end.
  • We need to study embedded leverage in markets


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