His colleagues said voluntary social distancing and structural shifts rooted in the pandemic “would likely mean that some proportion of businesses would close permanently,” even as states moved toward reopening.
The Fed’s June meeting was held as reopening plans swung into high gear in many states, but before a recent resurgence in coronavirus cases in parts of the South and West. There were about 23,000 new cases in the United States on June 10, New York Times data shows. That number skyrocketed to about 48,000 on June 30.
Fed officials have since suggested that a rising number of cases could hamper the economic healing process.
“I would hesitate to call this a recovery, because ultimately the virus will determine the pace at which we can go,” Mary C. Daly, president of the Federal Reserve Bank of San Francisco, said at a Washington Post online event on Wednesday. “A V-shaped recovery is certainly not something that I think is happening.”
Policymakers voiced concerns in June that if the downturn persisted, it could permanently scar the economy by leaving workers out of jobs for long spells, eroding their skills. The minutes also show that they thought virus mitigation strategies might reduce productivity, hampering future growth.
It is not just Fed officials who are worried. The central bank’s staff members, who advise the policy-setting officials and help to guide their understanding of the economy, downgraded their economic forecast from April, when lockdowns were already in full force, the minutes showed. The staff economists expected output to “rise appreciably” and the unemployment rate to decline in the second half of 2020, but they did not expect a complete recovery this year, and warned that “a more pessimistic projection was no less plausible than the baseline forecast.”
In that pessimistic path, another wave of infections will cost growth, increase unemployment and cause price gains to drift lower.
Article source: https://www.nytimes.com/2020/07/01/business/economy/federal-reserve-minutes.html
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