Federal Reserve and the Economy
The Federal Reserve held a virtual press conference for the first time in history. It was imperative that it be remote given current pandemic conditions. Surprisingly, there were no technical difficulties at the press conference and it was productive from my perspective.
I know you might find this a little dry, but I thought the discussion was quite helpful in understanding the posture of the Federal Reserve going forward. Jerome Powell was cautious and sober. He also painted a reasonable picture of recovery. No hyperbole.
Notice the calm nature of his remarks. I think it’s the right perspective to have when discussing our current fiscal challenges. I believe the Federal Reserve will do all that they can to stabilize the economy.
You can watch that video here https://youtu.be/g3Af2ntyQyU.
Let’s remember one thing. This is going to be the most difficult economic downturn since the Great Depression. The depths of economic impact will far outweigh what we saw during 2008.
However, while the depth will be lower, the risk of economic collapse is not as great. This is because the financial system is operating reasonably well including the banking system and lending operations. In 2008 that was not the case and that’s why there was a far greater collapse risk then today.
So, while the depth of the downturn will be greater, in our view there is a clearer path forward towards recovery than there was in 2008. Remember, that in 2008 banks needed to be bailed out, Fannie Mae was collapsing, AIG was imploding, Washington Mutual disappeared, etc. These financial institutions impacted the rest of the economy more so then the industries we see in crisis today.
A little confusing? I can summarize it in a couple bullet points:
- The economic data, included in GDP retrenchment and unemployment statistics, will be worse than 2008.
- However, the potential for economic calamity is less than 2008 because the banking and financial system is operating normally.
I believe we are not likely to see a V-shaped recovery on an economic basis. Look for a U-shaped recovery. The bottom of the U may be extended but I believe recovery is coming. It’s going to take time, but I believe the recovery will happen.
Lastly, we continue to deliver food and encouragement to front line workers on your behalf. They consistently tell us the positive words and support mean the world to them as they fight this virus battle. Here’s a few pictures below.
Be safe and be well. We will keep doing what we are doing on your behalf.