Mid-Year Review: Hindsight Too Late for 2020

Posted: Jun 24, 2020 | Author: Sarina Freedland

2020 is certainly not turning out the way anyone expected. The year began on a positive note, with trade tensions between the U.S. and China finally resolved. The FederalMid-Year review of 2020  Reserve was committed to keeping the fed funds target range steady at 1.50 to 1.75 percent. Consumers were still driving the economy in the longest expansion in history, and we were set up for another year of slow, but steady economic growth.

We got the slow, but definitely not the steady.

Within weeks of the new year, the COVID-19 pandemic assaulted not just the U.S., but the entire globe. By March, almost every country closed for business, bringing economic activity to a screeching halt. Businesses of all sizes laid off workers, people stayed in their homes, students finished the school year virtually, hospitals ran out of beds and supplies, and financial troubles mounted. The U.S. lost over 22 million jobs in two months, with initial unemployment claims surging 6.8 million in one week, followed by more than 12 weeks of claims hovering in the millions. The unemployment rate moved from a near-historic low of 3.5 percent to a 38-year high of 14.7 percent. All these statistics put data from the 2009 financial crisis to shame by large amounts.

Despite planning efforts, fighting the crushing economic impact of the pandemic continues to be a difficult task. Congress has spent almost $3 trillion in multiple programs directed toward small businesses and individuals, the Federal Reserve has pledged over $2 trillion to maintain stable financial markets that provide credit to municipalities and large companies, and the medical field is working furiously to develop treatments and a vaccine to combat the virus. At times, it feels like the world is in a race against time.

Financial Market Impact

The stock market has been vacillating between a relief recovery and the realization that a full economic recovery may be much further down the road. The bond market has been the anchor in the storm, with Treasury yields trading in a narrow range. Investors and market watchers understand that the Fed intends to keep the target fed funds rate near zero until 2022. Longer-dated maturities will also remain low as the Fed continues to buy billions of securities each week in what could be called an unofficial yield-targeting move. Helping the Fed maintain this posture is the lack of inflation pressure, despite pandemic-related disruptions to major supply chains.

What’s Next?

To paraphrase Federal Reserve Chair Jerome Powell, the economic recovery can take many roads, but at this time, no one can predict which path is most likely. Politicians, economists and business leaders can merely do what seems right at the moment. The pandemic created a sudden shock to the economic system that will take time to reverse. The good news is that we are already seeing signs of recovery, albeit slow, in the most recent economic data.

Retail sales, manufacturing activity and home purchases turned positive in May. Unemployment claims are declining from week to week, and the bleed in the labor force has stopped. Consumers are feeling more confident about the future, while remaining financially conservative and maintaining higher than normal savings levels. Although low interest rates may not help credit union portfolios, they should boost loan demand as members begin to feel more at ease with their financial situations. The best prognosis we can hope for is a return to slow and steady growth.


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