• Background and views of June 10 Projection Materials and economy of most interest.
  • Powell testimony in Congress on Tuesday was optimistic though cautions on pandemic.
  • GDP is projected to contract 6.5% this year, expand 5% in 2021, 3.5% in 2022.
  • Minutes unlikely to supplant Powell’s recent Congressional information.

In the fast moving world of the coronavirus the minutes of the last FOMC meeting have already been supplanted by Federal Reserve Chairman Jerome Powell’s Congressional testimony.

Treasury Secretary Steven Mnuchin and Mr.  Powell spoke and answered questions at the House Financial Services Committee on Tuesday in their quarterly appearance as required by the CARES Act, the Coronavirus Aid, Relief and Economic Security Act.

Mr. Powell stressed that control of the pandemic was of the greatest importance if the US was to recover from its steepest economic contraction in history.

“We have entered an important new phase and have done so sooner than expected,” he told the committee.  “The path forward for the economy is extraordinarily uncertain and will depend in large part on our success in containing the virus,” he noted. “A full recovery is unlikely until people are confident that it is safe to re-engage in a broad range of activities.”

Projection Materials

The Fed formulates and releases its Projection Materials four times a year, March, June, September and December.  The scheduled March 18 issue and the meeting itself was cancelled as the FOMC met twice earlier that month on March 3 and 15 to institute its emergency pandemic response.  The minutes of those two meeting were released on April 8.

The materials from the June 9-10 meeting were the first to include the economic damage from the coronavirus shutdown. The Fed forecast that the US economy will contract 6.5% this year and expand 5% in 2021.   Unemployment is expected to be 9.3% in December. It was 13.3% in May and is predicted to drop to 12.3% in June.  Core PCE inflation will be 1% this year 1.5% in 2021 and 1.7% in 2022. 

In perhaps the most surprising assessment the fed funds rate is expected to remain unchanged until through the end of 2022.

With the fed funds rate expected to be static for more than two-and-a-half years the discussions and views around the economic projections will be the main market interest but with little new information expected. 

After Mr. Powell’s multiple recent appearance in Congress, all more up to date and pertinent than the materials, it would be a surprise if the minutes are anything more than historical value.

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