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Business & Finance

Fed officials' GDP forecasts not likely factoring second COVID wave

  • At their meeting last week, 17 Fed policymakers provided their first take on where the economy goes next in the wake of the pandemic.
  • "Does this projection assume a potential second wave of coronavirus and the accompanying economic impacts?" Senator
Published June 16, 2020

The economic growth projections Federal Reserve officials offered last week by and large do not factor in a potential second wave of coronavirus infections later this year, Fed Chair Jerome Powell said on Tuesday.

Powell's remark came in the first of two days of testimony to Congress, during which he repeated a now-standard mantra that the disease will determine the strength and persistence of any recovery from the recession that began in February.

That said, it appears a second wave is not his or his colleagues' base case.

At their meeting last week, 17 Fed policymakers provided their first take on where the economy goes next in the wake of the pandemic. The median view called for a full-year contraction in gross domestic product of 6.5% from 2019.

"Does this projection assume a potential second wave of coronavirus and the accompanying economic impacts?" Senator Krysten Sinema, an Arizona Democrat, asked Powell.

"That number is actually the median of the projections of the 17 participants of the FOMC (Federal Open Market Committee) so it isn't an official prediction of the Fed," Powell said in reply. "It will be based on different assumptions made by different people. Each of the 17 will have probably made a somewhat different assumption."

"I would think the answer to your question, though, largely will be that ... my colleagues will not principally have assumed that there will be a substantial second wave."

"Oh, that's concerning," Sinema retorted.

To be sure, the 17 projections cover a wide-range of potential outcomes, the worst of which arguably could take into account a resurgence of COVID-19 in the second half of the year. Policymakers' estimates for the 2020 change in GDP ranged from a low of negative 10% to a high of negative 4.2%.

Still, to Powell's point, the "central tendency," which reflects the weight of estimates, ranged from negative 7.6% to negative 5.5%, which would not appear to factor a substantial drag from any second wave.

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