Federal Reserve officials expressed fears in a meeting last month that a second wave of the novel coronavirus could send a reeling U.S. economy deeper into an unprecedented recession, according to minutes released by the central bank Wednesday.
During the June 9-10 meeting of the Fed’s policymaking Federal Open Market Committee (FOMC), which came weeks before record spikes of the virus in states including Florida, Arizona and Texas, economists warned that resurgence of COVID-19 cases could decimate economic growth, spike unemployment and sap inflation far beyond the staggering levels seen earlier this year.
Fed officials also fretted that the ongoing loosening of restrictions imposed to slow the spread of COVID-19 would “contribute to a significant increase of infections” as policymakers face a “great deal of uncertainty” driven by the faltering U.S. response to the pandemic.
“Participants judged that the effects of the coronavirus outbreak and the ongoing public health crisis will weigh heavily on economic activity, employment, and inflation in the near term and would pose considerable risks to the economic outlook over the medium term,” the minutes read.
The minutes from June’s FOMC meeting is the latest glimpse into the Fed’s cautious approach toward a budding but increasingly fragile economic recovery.
The U.S. added 2.5 million jobs in May and saw a resurgence of consumer spending as states gradually eased social distancing orders and businesses closures. But the reopening of businesses without sufficient virus prevention efforts may have laid the groundwork for June’s sharp rise in coronavirus cases throughout the South and Sun Belt.
Fed officials voiced concerns earlier this month that May’s rebound may not have marked the nadir of the recession given the looming threat of a second wave. Officials argued that “a sustained reopening of the economy” depended on effectively curbing the pandemic and worried about the consequences of doing so without the virus under control.
Fed Chairman Jerome Powell offered a similar warning Tuesday during testimony before the House Financial Services Committee, arguing that a full recovery is “unlikely” until Americans feel comfortable gathering in large numbers and close spaces.
“While this bounce-back in economic activity is welcome, it also presents new challenges — notably, the need to keep the virus in check,” Powell said.
More than a quarter-million Americans tested positive for the coronavirus last week, and more than 40,000 tested positive on three consecutive days over the weekend.