The Federal Reserve has been staying busy, as one would expect from the country's most important policymaking institution in the middle of an economic crisis. While the scope for moving the federal funds rate is low to non-existent (it hovers just above zero), quantitative easing remains a focus. As an earlier post detailed, the Fed has extended their reach into longer-term Treasury securities, municipal bonds, mortgage backed securities, and commercial paper. Also, for the first time in its history, the Fed bought corporate bonds. Till recently they were buying exchange-traded funds that track the corporate bond market. This week, however, the Fed announced they will be buying individual coporate bond issuances on the primary market as part of their efforts "to support market functioning and ease credit conditions."
The Federal Open Market Committee met earlier in June. Usually, the fate of the federal funds rate is the most important agenda item, but with not much to do on that front, the discussion of the economy's future was the key bullet point on their list. Every quarter the Fed releases an official economic "outlook." However, the March's release was postponed because, at that point, with the shutdowns just starting, the uncertainty was overwhelming, and even the Fed had little idea of what to expect! So the "Summary of Economic Projections" was released with the June meeting minues.
“The ongoing public health crisis will weigh heavily on economic activity, employment and inflation in the near term, and poses considerable risks to the economic outlook over the medium term”
The policymakers see continued levels of further contraction, high unemployment, low inflation and rock-bottom interested rates through this year, with glimmers of hope in 2021. The interesting thing about the Fed's projection is the high levels of uncertainty. The "Summary" is actually a compilation of projections from the seventeen FOMC members. As this table below shows, while the average prediction for GDP is 5% growth in 2021, but the range is anywhere from -1% to 7%.
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| Summary of Economic Projections |
Some members of the Fed also had thoughts on another prevailing issue of the day: systemic racism. Minneapolis Fed President Kashkari, Dallas Fed President Kaplan, Atlanta Fed President Bostic and Chairman Powell have commented on the deleterious affects of systemic racism on the American economy.
"The Fed’s response to the pandemic and its aggressive pursuit of its goals of stable inflation and full employment, Bostic said, is one way it can contribute to ending racism, by laying the groundwork for businesses to grow faster, hire more workers, and create “opportunities for African Americans and others who have not been as attached to the economy.” (Raphael Bostic, CEO and President of the Atlanta Fed)
