The Fed estimated a 'more adverse' coronavirus outbreak would plunge the US into a year-long recession, meeting minutes reveal

The Fed estimated a 'more adverse' coronavirus outbreak would plunge the US into a year-long recession, meeting minutes reveal
Federal Reserve
  • The Federal Reserve's directors envisioned two economic scenarios of differing intensity as the coronavirus began driving business shutdowns and layoffs, Federal Open Market Committee meeting minutes released Wednesday showed.
  • A short-lived outbreak would bring an economic recovery in the second half of the year, the board said in the emergency session, while a prolonged crisis would push a rebound into 2021.
  • Several directors agreed that the "healthy state of the US banking system" and the virus's "temporary nature" set the current downturn apart from the 2008 financial crisis.
  • The March 15 meeting yielded a 100 basis-point rate cut that brought interest rates near zero, as well as up to $700 billion worth of Treasury purchases.
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In the month before the Federal Reserve's emergency March meeting, the coronavirus took the US by storm, the 11-year bull market ended, and the economy was dragged into a likely recession.


Minutes for the March 15 session released Wednesday revealed the central bank's directors envisioned two economic scenarios before the harshest lockdown measures were announced. A calmer outbreak would bring an economic recovery in the second half of the year, while its "more adverse scenario" saw the rebound taking longer to arrive and "not materially under way until next year."

Members of the Fed board emphasized that the coronavirus-induced downturn was crucially different from the 2008 meltdown, according to the minutes. The current slump is "temporary," and the "healthy state of the US banking system" sets the pandemic apart as an unprecedented drag on the US economy, the directors said.

The Fed's March 15 meeting yielded a "forceful" policy response, the minutes stated, including a 100 basis-point rate cut that brought the benchmark interest rate close to zero for the first time since 2008. Additional purchases of up to $700 billion in Treasury notes lifted the liquidity-parched market, and bank reserve requirement ratios were lowered to zero percent.

Read more: A Wall Street wealth chief breaks down why the coronavirus bear market may be unique in history - and pinpoints the areas where traders should be buying right now


The relief measures signal a "whatever it takes" attitude from the central bank not seen since the global financial crisis, but the Fed's policy playbook is also markedly different from the last recession, Bob Miller, head of Americas fundamental fixed income at BlackRock, said.

"We expect the FOMC will do what is necessary to maintain accommodative financial conditions for the balance of this year," Miller said in an email to Business Insider. "When attempting to judge extraordinary crisis measures of this kind, it's natural to try to find historical analogies to ground expectations, but even the economic rescue measures put in place during the 2008/09 financial crisis are unlikely to serve as an adequate analog."

The mid-March FOMC session arrived before the Fed took its most drastic steps to prop up the ailing economy. The central bank announced later in the month it would lift the limit on its asset purchases to further boost liquidity in financial markets. Three new lending facilities would provide monetary aid to employers, small businesses, and companies amid the virus-fueled shutdown.

The Fed is now coordinating with the Treasury Department to ensure aid set aside in the government's $2 trillion stimulus bill reaches businesses in need. Investors expect the central bank to extend aid to local governments as states and cities face weakening tax revenues and risk of budget deficit.

The previous FOMC meeting's minutes were published on February 19, the same day the S&P 500 reached an all-time high.


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