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July 14, 2020
So you might want to get used to these occasional bright spots mixed with sobering long-term outlooks.
Following the June Federal Open Markets Committee meeting, the Fed indicated that the labor market would remain a challenge, predicting a 9.3% unemployment rate at the end of this year and making its way down to 5.5% … but not until the end of 2022. Chairman Jerome Powell struck a largely dovish tone, according to Goldman Sachs Research, which also said the meeting’s outcome was “mostly in line” with its economists’ expectations.
Still, if you’re wondering what this economic situation looks like up close, the Fed addressed that, too. In its semi-annual Monetary Policy Report, the policymakers outlined a view of what the economy’s already endured, including 2nd quarter GDP falling “at a breathtaking pace.”
It also noted wages were dropping, but at the same time, businesses are seeing employment costs rise as they try to mitigate the expenses associated with Covid-19, including making their operations Covid-safe. The report also laid out how low-paid workers have lost the most jobs and, in general, history shows those who are laid off and don’t return to their jobs generally end up earning less than before.
So what does the future hold? The report makes clear just how hard it is to predict what will happen since so much depends on our response to the coronavirus. In essence, the Fed writes that the US economic recovery is largely tied to the well-being of others: “the pace of recovery will ultimately depend on the evolution of the Covid-19 outbreak in the United States and abroad and the measures undertaken to contain it.”
One thing to know about job reports is that they’re a snapshot of a particular moment, and, as CNBC notes, June’s job numbers were tallied before some states slowed or reversed economic reopenings because of a spike in coronavirus cases.
As for what’s next, the Congressional Budget Office put out a report in July with predictions for the rest of 2020 and through 2030 and predicts if the economy will recover by 2030 and that we’ll feel some quick bumps in the next few months; these include seeing unemployment rise to 14% during the third quarter of this year and then seeing it dramatically fall at the end of the year and into 2021.
The caveat here is that the big drop in unemployment will still leave us short. The CBO expects that the number of unemployed workers won’t fall to pre-Covid levels until the next decade breaks.
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