- Jerome Powell’s webcast will shed light on what the Fed expects over the next six months.
- Powell is unlikely to suggest a V-shaped recovery, even at best.
- His comments could inject a good deal of reality into the financial markets, leading to a stock market crash.
On Thursday, Federal Reserve President Jerome Powell will deliver a prepared speech via live webcast in a think tank. Powell’s remarks will come shortly after the Fed meeting minutes showed that US central bankers were concerned about the direction of the economy at their March 2 meetings.
Powell’s remarks will clarify Fed meeting minutes
The minutes of the Fed meeting revealed that meeting participants believed that the direction of the US economy had become “deeply uncertain”. At the March 15 meeting, central bankers predicted two possible economic recovery scenarios – one in which the US economy would recover in the second half of 2020, and the other suggesting that Americans would continue to suffer. from the economic crisis until 2021.
In particular, a lot has happened since this meeting on March 15. The number of Americans who have filed for unemployment in the past two weeks has approached 10 million, and that number is expected to continue to rise when unemployment data is released on Thursday.
Comments from other Fed officials in recent days suggest that the bank is preparing for the worst. Chicago Fed Chairman Charles Evans warned on Wednesday that the economic damage from the coronavirus would be serious.
The economic slowdown will be deep. There is no way out. Even in the best of cases, the United States and the global economy will be less prosperous after this crisis than we would have been. We all use precious resources and savings that we intended to use for other aspirations.
What scenario are we facing?
Addressing the nation is a political tool for the Fed, in March Powell appeared on the Today Show to offer an economic update. But the interview was also seen primarily as a way to allay fears and build confidence in the bank’s stimulus packages.
Thursday’s interview is likely the same as the Fed chairman attempts to give a transparent overview of the bank’s forecasts without inciting fear and panic. Perhaps the most revealing aspect of the interview will be which economic forecasts Mr. Powell is heading towards – does he see the US recovery coming in late 2020 or does he expect a more prolonged slowdown.
At this point, a recovery at the end of 2020 seems highly unlikely. Citigroup has forecast a $ 5 trillion drop in global economic output. JP Morgan says that figure will be closer to $ 5.5 million – similar to the losses recorded during the 2008-2009 recession. And these are some of the best scenario predictions.
The Bank for International Settlements has warned that a second wave of coronavirus epidemics could cause US GDP to drop 12% by the end of the year.
Powell could cut the market rally to its knees
Optimism pushed stocks up in an impressive rally that brought the stock market back into bullish territory. But most analysts agree it’s calm before the storm – the market has ignored the economic devastation that is probably around the corner.
Although the encouraging numbers of coronaviruses suggest that Europe may see its case peak, the data in the United States is less revealing. While Donald Trump has said he thinks the peak is upon us, others say that New York is approaching a peak, but other cities across America have yet to experience their.
Of course, Powell has no medical experience and cannot make an accurate prediction of the state of the coronavirus in the United States. However, it is likely that his best scenario is not the V-shaped recovery that investors seem to be waiting for. If Powell does not confirm the economic rebound in the market during its last rally, the head of the Fed could trigger a stock market crash.
Disclaimer: The opinions expressed in this article do not necessarily reflect the views of CCN.com.
This article was edited by Samburaj Das.