FOMC Minutes: Members See Economic Activity Declining at ‘Unprecedented Rate’ in Q2

Members of the Federal Reserve Open Market Committee said they expect economic activity in the second quarter to “decline at an unprecedented rate” as the coronavirus pandemic persists in the U.S., with the heaviest burden likely to fall on the “most vulnerable and financially constrained households in the economy.”

In minutes from the committee’s late April meeting, participants noted that the pandemic was having “severely adverse effects on aggregate household spending and consumer confidence.” In addition, the committee also noted a dramatic downturn in business activity and investment and a sharp increase in layoffs, particularly in tourism and transportation sectors, as unemployment neared a post-World War II peak.

Meanwhile, inflation continued to run below the FOMC’s 2% target, and the committee noted that “the return of inflation to the Committee’s 2 percent longer-run objective would likely be further delayed but that the accommodative stance of monetary policy would be helpful in achieving the 2 percent inflation objective over the longer run.” They acknowledged that the policy response to COVID–19—including the Fed’s 13(3) facilities and the Paycheck Protection Program—helped to limit the severity of the downturn, but noted that “even greater fiscal support may be necessary if the economic downturn persists.”