Today the financial markets are reeling from yesterday’s events, namely the announcements made by the FOMC regarding the state of the economy of the United States. Though the coronavirus pandemic and the extreme seriousness of the situation in the US in particular had already made investors apprehensive, yesterday’s findings further deflated their hopes for a quick recovery.
The Federal Reserve now estimates that the US economy will shrink by as much as 6.5% this year. The unemployment rate, which spiked to 13.3% in May, is predicted to average about 9.3% in 2020, provided there are no more lockdowns and that a significant number of the people who lost their jobs during the pandemic find employment again.
The most important predictor for economic health in the US from this point on will be inflation. Before the coronavirus, the United States was one of the few countries with inflation rates close to the golden standard of 2%. Now, with the pandemic, that percentage is predicted to have dropped to 0.9%.
The Federal Reserve will most likely stick to a dovish approach to monetary policy for at least a year, maybe even longer, during which it is to see unemployment drop and inflation rise.
We expect the initial jobless claims today in the US. Though a better number than last week is highly likely, it most probably won’t be enough to encourage the markets, not after what the Federal Reserve has shared.
Meanwhile, the coronavirus remains in everyone’s mind still. The world is approaching 7.5 million cases, with thousands of new infections daily in Brazil, Russia, Mexico, Iran, Pakistan, and other countries. Most alarmingly, the United States is also seeing thousands of new Covid-19 cases in the states that have ended the lockdowns, suggesting that a second wave is beginning in the most heavily affected country in the world.
Amid all of this news, stock markets are down today as investors’ mood has soured.
