Amid 66 pages of groupthink and mumblespeak, The Fed's just-released semi-annual Monetary Policy Report builds on Fed Chair Powell's downbeat assessment of the way forward, throwing more cold water on the stock market's hopes for a V-shaped recovery, saying that the COVID-19 outbreak was causing “tremendous human and economic hardship across the United States and around the world.”
" The strains on household and business balance sheets from the economic and financial shocks since March will likely create persistent fragilities. "
Key headlines include:
FED SAYS COLLAPSE IN DEMAND MAY ULTIMATELY BANKRUPT MANY BUSINESSES
FED SAYS DISRUPTIONS TO GLOBAL TRADE MAY ALSO RESULT IN A COSTLY RECONFIGURATION OF GLOBAL SUPPLY CHAINS
FED SAYS FUTURE PROGRESSION OF THE PANDEMIC REMAINS HIGHLY UNCERTAIN, WITH RESURGENCE OF THE OUTBREAK A SUBSTANTIAL RISK
FED SAYS EMPLOYMENT FOR LOWER-WAGE EARNERS 35% LOWER THAN IN FEBRUARY, COMPARED WITH 5% TO 15% LOWER FOR HIGHER-WAGE EARNERS
FED SAYS SOME SMALL BUSINESSES AND HIGHLY LEVERAGED FIRMS MIGHT HAVE TO SHUT DOWN PERMANENTLY OR DECLARE BANKRUPTCY
FED SAYS THE PATH AHEAD IS EXTRAORDINARILY UNCERTAIN
FED SAYS WIDESPREAD FAILURE OF SMALL BUSINESSES WOULD ADVERSELY ALTER THE ECONOMIC LANDSCAPE AND POTENTIALLY SLOW THE RECOVERY AND FUTURE LABOR PRODUCTIVITY GROWTH
And, perhaps the most important section of the entire document is as follows:
Despite aggressive fiscal and monetary policy actions, risks abroad are skewed to the downside.
The future progression of the pandemic remains highly uncertain, with resurgence of the outbreak a substantial risk. In addition, the economic damage of the recession may be quite persistent.
The collapse in demand may ultimately bankrupt many businesses, thereby reducing business dynamism and innovation. Unlike past recessions, services activity has dropped more sharply than manufacturing - with restrictions on movement severely curtailing expenditures on travel, tourism, restaurants, and recreation - and social-distancing requirements and attitudes may further weigh on the recovery in these sectors. Disruptions to global trade may also result in a costly reconfiguration of global supply chains. Persistently weak consumer and firm demand may push medium- and longer-term inflation expectations well below central bank targets, particularly in regions with already low inflation at the onset of the recession.
Finally, additional expansionary fiscal policies - possibly in response to future large-scale outbreaks of COVID-19 - could significantly increase government debt and add to sovereign risk, especially for countries with already limited fiscal space.
Of course The Fed offers its usual gruel, saying that to combat those hardships, it's “committed to using its full range of tools to support the U.S. economy in this challenging time."
But it appears the market is starting to wake up...
Federal Reserve Chairman Jerome Powell will testify before congressional committees on the new report Tuesday and Wednesday.
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Read the Full Monetary Policy Report below: