Central Banks

Monday, July 13, 2020 - 18:37

MNI POLICY: SF Fed: Several Years Before Economy At Potential


By Greg Quinn

SAN FRANCISCO (MNI) - Following are highlights of the San Francisco "FedViews" report published Monday:

Thomas M. Mertens, vice president at the Federal Reserve Bank of San Francisco, stated his views on the current economy and the outlook as of July 9, 2020.

*Gross domestic product fell by 5% at an annualized rate during the first quarter of 2020, and we expect a substantially larger decline in the second quarter.

*Barring a major second wave of infections, the U.S. economy should start its recovery during the second half of the year. But it will likely take a few years until the U.S. economy has fully caught up with its potential. A pronounced second wave, however, would likely lead to a deterioration of the overall economic outlook and delay recovery. Overall risks are currently tilting towards the downside.

*Over the next few years, we foresee a gradual decrease in unemployment, reaching a level of around 6% by the end of 2022, still well above the levels prior to the pandemic's onset.

*We expect inflation rates to remain below the Federal Open Market Committee's (FOMC's) 2% target rate in the near term and increase gradually toward the target once the recovery is under way.

*The two-year Treasury yield is currently trading within the target range of the federal funds rate, indicating that investors expect the policy rate to stay at the lower bound for an extended period of time.

--MNI Ottawa Bureau; +1 613-314-9647; email: greg.quinn@marketnews.com

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