The coronavirus crisis shows no signs of improvement: the Federal Reserve forecasts predict that the US economy will begin recovery in late 2020, but real growth will be difficult and there are many risks of relapses.
The US economy is expected to recover in the second half of the year, but for analysts the most pessimistic scenarios, with new waves of the coronavirus epidemic, would lead to massive business closures and bankruptcies. “A reasonable prospect is that with the lifting of some of the restrictions on staying at home, the economy will begin to grow again in the second half of 2020 and unemployment will begin to fall” said the Federal Reserve Bank president of Cleveland, Loretta Mester, at an online event held by the Chicago CFA Society.
For the Federal Reserve executive “By the end of this year, production will still be below the level of the end of last year, by 5% or even a little more, and the unemployment rate will still be at one digit or two digit“. Mester added that there is considerable uncertainty as to how the recovery will be: “It is not difficult to imagine more pessimistic scenarios, especially if a surge in virus cases will require a new closure of the business or if there will be much more damage in terms of corporate and personal bankruptcies or if instability will occur in the banking system”.
The Federal Reserve expected the unemployment rate to rise further, perhaps up to 20 percent or more, as the Covid-19 crisis continues to ramp up in the country: “This is the worst and most rapid deterioration in the work that many of us have ever seen, “said Mester. The Department of Labor reported last week that there were over 20 million new unemployed in the US in April, totaling 30 million unemployed and wiping out a decade of job earnings from the global financial crisis and pushing the unemployment rate to a record 14.7 percent.
Unfortunately, the Fed’s forecasts for the US economy are not optimistic, indeed: “At this point, I think some of the more pessimistic results are almost as likely as the reasonable line I just described,” said Mester, noting that the recovery will depend the evolution of the virus and the success of the methods to control its spread. “It will also depend on the success of political actions in ensuring that the temporary shutdown does not cause more persistent damage to the economy and that the economy is well organized for a recovery,” added the Fed official,