Fed Warns of ‘Extraordinarily Uncertain’ Path to Recovery


WASHINGTON — The Federal Reserve painted a sober picture of the economy on Friday, declaring that the financial system remains under stress because of the coronavirus pandemic and that the path back to steady growth and a strong labor market is unsure.

In a semiannual monetary policy report to Congress, its first since the pandemic took hold, the Fed said the nation’s gross domestic product would probably contract “at a rapid pace” in the second quarter after “tumbling” in the first.

“Global economic activity in the first half of the year has experienced a sharp and synchronized contraction greater than that in the global financial crisis” more than a decade ago, the Fed said. Domestically, it added, “the path ahead is extraordinarily uncertain.”

The worldwide slowdown came after governments locked down their economies to slow the spread of the virus. In the United States, states are slowly lifting stay-at-home orders that have been in place since mid-March, and the economy is beginning to recover after tipping suddenly and sharply into recession.

While the central bank has moved to blunt the fallout in financial markets from that shock — buying unlimited quantities of government-backed bonds and rolling out a series of emergency lending programs that go beyond even the response to the 2008 financial crisis — it noted that borrowing conditions remained tight for households with weaker credit histories. It also flagged lingering risks to banks and other financial entities.

“Financial-sector vulnerabilities are expected to be significant in the near term,” according to the report. “The strains on household and business balance sheets from the economic and financial shocks since March will likely create persistent fragilities.”

President Trump has made it clear that he expects a rapid economic rebound, even criticizing the Fed on Twitter on Thursday for being too glum. But the central bank reiterated its recent caution in the report, highlighting that challenges to the economy remain even as states reopen.

“Importantly, some small businesses and highly leveraged firms might have to shut down permanently or declare bankruptcy, which could have longer-lasting repercussions on productive capacity,” the report said. “In addition, there is uncertainty about future labor demand and productivity as firms shift their production processes to increase worker safety, realign their supply chains, or move services online.”

The Fed noted that employers had cut about 20 million employees from payrolls since February, reversing a decade of job gains. While the unemployment rate eased to 13.3 percent in May after jumping to 14.7 percent in April, the Fed called that rate “still very elevated” and said that workers in low-wage jobs, who are disproportionately from minority groups, had been hit especially hard.

“In the months ahead, labor market prospects for the unemployed and underemployed — both overall and for particularly hard-hit groups of workers — will largely depend on the course of the Covid-19 outbreak itself and on actions taken to halt its spread,” the report said.

It also suggested that the pandemic is probably costing workers more than their employment: Those still in the labor market are seeing weak pay growth.

“While reliable data are limited, anecdotal evidence suggests that the economic downturn is putting downward pressure on wages,” it said.

Jerome H. Powell, the Fed chair, will testify remotely before the Senate Banking Committee on Tuesday and the House Financial Services Committee on Wednesday as part of the same legislatively mandated semiannual process that yielded the Friday report.

  • Updated June 12, 2020

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      Touching contaminated objects and then infecting ourselves with the germs is not typically how the virus spreads. But it can happen. A number of studies of flu, rhinovirus, coronavirus and other microbes have shown that respiratory illnesses, including the new coronavirus, can spread by touching contaminated surfaces, particularly in places like day care centers, offices and hospitals. But a long chain of events has to happen for the disease to spread that way. The best way to protect yourself from coronavirus — whether it’s surface transmission or close human contact — is still social distancing, washing your hands, not touching your face and wearing masks.

    • Does asymptomatic transmission of Covid-19 happen?

      So far, the evidence seems to show it does. A widely cited paper published in April suggests that people are most infectious about two days before the onset of coronavirus symptoms and estimated that 44 percent of new infections were a result of transmission from people who were not yet showing symptoms. Recently, a top expert at the World Health Organization stated that transmission of the coronavirus by people who did not have symptoms was “very rare,” but she later walked back that statement.

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    • How many people have lost their jobs due to coronavirus in the U.S.?

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    • How do we start exercising again without hurting ourselves after months of lockdown?

      Exercise researchers and physicians have some blunt advice for those of us aiming to return to regular exercise now: Start slowly and then rev up your workouts, also slowly. American adults tended to be about 12 percent less active after the stay-at-home mandates began in March than they were in January. But there are steps you can take to ease your way back into regular exercise safely. First, “start at no more than 50 percent of the exercise you were doing before Covid,” says Dr. Monica Rho, the chief of musculoskeletal medicine at the Shirley Ryan AbilityLab in Chicago. Thread in some preparatory squats, too, she advises. “When you haven’t been exercising, you lose muscle mass.” Expect some muscle twinges after these preliminary, post-lockdown sessions, especially a day or two later. But sudden or increasing pain during exercise is a clarion call to stop and return home.

    • My state is reopening. Is it safe to go out?

      States are reopening bit by bit. This means that more public spaces are available for use and more and more businesses are being allowed to open again. The federal government is largely leaving the decision up to states, and some state leaders are leaving the decision up to local authorities. Even if you aren’t being told to stay at home, it’s still a good idea to limit trips outside and your interaction with other people.

    • What are the symptoms of coronavirus?

      Common symptoms include fever, a dry cough, fatigue and difficulty breathing or shortness of breath. Some of these symptoms overlap with those of the flu, making detection difficult, but runny noses and stuffy sinuses are less common. The C.D.C. has also added chills, muscle pain, sore throat, headache and a new loss of the sense of taste or smell as symptoms to look out for. Most people fall ill five to seven days after exposure, but symptoms may appear in as few as two days or as many as 14 days.

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      If air travel is unavoidable, there are some steps you can take to protect yourself. Most important: Wash your hands often, and stop touching your face. If possible, choose a window seat. A study from Emory University found that during flu season, the safest place to sit on a plane is by a window, as people sitting in window seats had less contact with potentially sick people. Disinfect hard surfaces. When you get to your seat and your hands are clean, use disinfecting wipes to clean the hard surfaces at your seat like the head and arm rest, the seatbelt buckle, the remote, screen, seat back pocket and the tray table. If the seat is hard and nonporous or leather or pleather, you can wipe that down, too. (Using wipes on upholstered seats could lead to a wet seat and spreading of germs rather than killing them.)

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      The C.D.C. has recommended that all Americans wear cloth masks if they go out in public. This is a shift in federal guidance reflecting new concerns that the coronavirus is being spread by infected people who have no symptoms. Until now, the C.D.C., like the W.H.O., has advised that ordinary people don’t need to wear masks unless they are sick and coughing. Part of the reason was to preserve medical-grade masks for health care workers who desperately need them at a time when they are in continuously short supply. Masks don’t replace hand washing and social distancing.

    • What should I do if I feel sick?

      If you’ve been exposed to the coronavirus or think you have, and have a fever or symptoms like a cough or difficulty breathing, call a doctor. They should give you advice on whether you should be tested, how to get tested, and how to seek medical treatment without potentially infecting or exposing others.


Mr. Powell has emerged as a voice of caution throughout the pandemic, warning repeatedly that the return to prosperity could be a long slog.

“We’re doing a fair job of getting through these first few months, more than a fair job,” he said at a news conference after the Fed’s regular policy meeting this week. “The question, though, is that group of people who won’t be able to go back to work quickly, what about them?”

Mr. Powell said that beyond the Fed’s monetary policy, support for the recovery might require further action by Congress and the White House, with their taxing and spending powers. “It’s possible that we will need to do more,” he said, “and it’s possible that Congress will need to do more.”

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