Certain segments of the economy were beginning to show improvement in recent days, but the trajectory of the economy overall will continue to depend on the course of the coronavirus, according to minutes from the most recent Federal Open Market Committee meeting released today.
While consumer spending rallied, members observed that the business sector showed far less improvement, with many Federal Reserve districts continuing to report high levels of uncertainty and risk. Meanwhile, labor market gains slowed relative to May and June, and reports of COVID-19 resurgences led to additional local restrictions in certain areas.
The committee remained concerned that these additional waves of outbreaks could result in protracted economic disruptions that could lead lenders to tighten conditions, stymieing the flow of credit to households and business. They also flagged potential financial stability risks “if one of the more adverse scenarios regarding the spread of the virus and its effects on economic activity was realized.”
Potential vulnerabilities include the highly leveraged nonfinancial corporate sector, members noted. Additionally, “the anticipated increase in Treasury debt over the next few years could have implications for market functioning.”