Federal Reserve Minutes Show a Litany of Reasons to Worry About Economy – The New York Times

His colleagues said voluntary social distancing and structural shifts rooted in the pandemic “would likely mean that some proportion of businesses would close permanently,” even as states moved toward reopening.

The Fed’s June meeting was held as reopening plans swung into high gear in many states, but before a recent resurgence in coronavirus cases in parts of the South and West. There were about 23,000 new cases in the United States on June 10, New York Times data shows. That number skyrocketed to about 48,000 on June 30.

Fed officials have since suggested that a rising number of cases could hamper the economic healing process.

“I would hesitate to call this a recovery, because ultimately the virus will determine the pace at which we can go,” Mary C. Daly, president of the Federal Reserve Bank of San Francisco, said at a Washington Post online event on Wednesday. “A V-shaped recovery is certainly not something that I think is happening.”

Policymakers voiced concerns in June that if the downturn persisted, it could permanently scar the economy by leaving workers out of jobs for long spells, eroding their skills. The minutes also show that they thought virus mitigation strategies might reduce productivity, hampering future growth.

It is not just Fed officials who are worried. The central bank’s staff members, who advise the policy-setting officials and help to guide their understanding of the economy, downgraded their economic forecast from April, when lockdowns were already in full force, the minutes showed. The staff economists expected output to “rise appreciably” and the unemployment rate to decline in the second half of 2020, but they did not expect a complete recovery this year, and warned that “a more pessimistic projection was no less plausible than the baseline forecast.”

In that pessimistic path, another wave of infections will cost growth, increase unemployment and cause price gains to drift lower.

The staff also flagged some risks in financial markets, even as Fed actions — including a series of emergency lending programs — have eased strains since March, when credit conditions seized up as investors realized the full extent of the pandemic and rapidly cashed out their financial positions.

They pointed to “early signs of credit repayment difficulties” in commercial real estate, and said that the “credit quality of nonfinancial corporations continued to deteriorate sharply.” They noted that downgrades in loans to highly indebted companies remained “very high” in April and May, and defaults in corporate bonds had also increased.

Against that glum backdrop, Fed officials chose to leave interest rates at rock-bottom levels in June, having slashed them to near-zero in a series of back-to-back emergency meetings in March.

The meeting included a discussion of future policy paths that the rate-setting Federal Open Market Committee could pursue.

Participants at the meeting said, “It will be important in coming months for the committee to provide greater clarity regarding the likely path of the federal funds rate and asset purchases,” the minutes showed.