Top Federal Reserve officials are starting to brace for a prolonged recession

Policymakers at the Federal Reserve, after some initial optimism that the Covid-19 slump would be deep but confined to the second quarter of this year, now seem braced for a more prolonged recession marked by high unemployment and a rising risk of corporate bankruptcies.

Top officials have launched what appears to be a coordinated shift in tune in public remarks over the last couple weeks, particularly as the prospect of a worsening second wave of infections that could deal yet another blow to an already fragile economy becomes reality.

Atlanta Fed President Raphael Bostic said during a webinar this week that economic activity appears to be “leveling off at a level lower than we were pre-crisis, which might suggest there is going to be some loss or that the time required to recover might be quite a bit longer than we might have otherwise expected.”

The Fed’s June meeting minutes said a number of officials feared “a substantial likelihood of additional waves of outbreaks, which, in some scenarios, could result in further economic disruptions and possibly a protracted period of reduced economic activity.”

 

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