U.S. Federal Reserve officials last month discussed the risks of additional waves of COVID-19 outbreaks on the U.S. economy as states continued reopening efforts, according to the minutes of the Fed’s latest policy meeting released Wednesday.
“A number of participants judged that there was a substantial likelihood of additional waves of outbreaks, which, in some scenarios, could result in further economic disruptions and possibly a protracted period of reduced economic activity,” said the minutes of the Fed’s meeting held on June 9 and 10, during which the central bank expected the benchmark interest rate to remain at the current level of near zero through at least 2022.
In some adverse scenarios, Fed officials noted that “more business closures would occur”, and workers would experience longer spells of unemployment that could lead to a loss of skills that could impair their employment prospects, the minutes showed.
“Participants commented that there remained an extraordinary amount of uncertainty and considerable risks to the economic outlook,” the minutes said, noting economic activity might recover more quickly “if sizable, widespread outbreaks could be avoided”.
The minutes also said that the U.S. economy needs support from “highly accommodative monetary policy for some time” and the conditions for that should be spelled out clearly.
“Various participants noted that the economy is likely to need support from highly accommodative monetary policy for some time and that it will be important in coming months for the Committee to provide greater clarity regarding the likely path of the federal funds rate and asset purchases,” said the minutes.
The Fed cut interest rates to near zero at two unscheduled meetings in March and began purchasing massive quantities of U.S. treasuries and agency mortgage-backed securities to repair financial markets. It also unveiled new lending programs to provide up to 2.3 trillion U.S. dollars to support the economy in response to the outbreak.
While recent economic data offer some positive signs, Federal Reserve Chairman Jerome Powell warned on Tuesday that the sooner-than-expected reopening of the U.S. economy has brought “new challenges” for the country.
“While this bounce back in economic activity is welcome, it also presents new challenges, notably the need to keep the virus in check,” Powell said at a congressional hearing, adding the path forward for the economy remains “extraordinarily uncertain” and will depend in large part on the success in containing the virus.
The Fed chief also warned that a second outbreak of the virus could force governments and people to “withdraw again from economic activity.”
“I think the worst part of it would be to undermine the public confidence, which is what we need to get back to lots of kinds of economic activity that involves crowds,” said Powell.