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The FED Doesn’t Sound Too Optimistic About the Economic Recovery

Posted Wednesday, October 14, 2020 by
Skerdian Meta • 1 min read

The US economy rebounded nicely after the lock-down months, when it crashed lower like everyone else. But while the rebound has slowed considerably in other places and services are back into contraction in Europe, the US economy is doing fairly well, as it is keeping up the pace.

But the FED doesn’t think so, or at least they are not trying to sound too optimistic, judging by comments made by FED members a while ago today. The USD is a little weaker after those comments, as EUR/USD climbs around 40 pips.

Comments from the Fed vice chair

Perhaps another year before US GDP reaches pre-pandemic peak
Will take longer for full employment to return
Economic data since May ‘surprisingly strong’ though the outlook remains uncertain and dependent on the virus and successful mitigation efforts
Canada service sector lags but rebound otherwise ‘broad’
New framework elevates the importance of keeping inflation expectations well-anchored at 2%
Maximum employment may well be lower than we thought
Believes there is pent-up demand for services with the arrival of a vaccine or at-home testing
Those changes would release available savings

“While economic recovery since the spring collapse has been robust, let us not forget that full economic recovery from the COVID-19 recession has a long way to go,” he said in a dazzling bit of stating-the-obvious.

Comments from the Richmond Fed President

Unemployment adjusted for the drop in participation is around 11%
Downtrend in participation by prime-age women may limit the rebound
Fed will aim to keep rates low until we see moderate overshoots of inflation

How low on rates and how much of an overshoot will be a big question for 2021 and beyond. The Fed has tried to define those parameters loosely but but I expect the goalposts will be moved repeatedly.

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