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New York Times|Last Updated: Jun 13, 2020, 06.20 PM IST
By Jeanna Smialek
WASHINGTON: The Federal Reserve painted a sober picture of the economy 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.”
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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.”
“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.”
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Jerome 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.
Powell has emerged as a voice of caution throughout the pandemic, warning repeatedly that the return to prosperity could be a long slog.
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