Federal Reserve warns 'substantial likelihood' new waves of coronavirus could lead to 'protracted' recession

On Wedneseay, Politico reported that the Federal Reserve is warning there is a "substantial likelihood" that new outbreaks of coronavirus could trigger additional drops in economic activity, leading to a "protracted" economic downturn. The warning comes from the minutes of a policy meeting the central bank held in April.

"The document underscores that Fed officials are highly unsure about how the U.S. economy will fare, citing an 'extraordinary amount of uncertainty and considerable risks' over the next year or two," reported Victoria Guida. "They pointed to 'several alternative scenarios … that all seemed about equally likely.'"

"If there are additional outbreaks, that 'could lead to a protracted period of severely reduced economic activity,' according to the minutes," wrote Guida. "'On the other hand, economic activity could recover more quickly if the pandemic subsided enough for households and businesses to become sufficiently confident to relax or modify social-distancing behaviors over the next several months,' the document adds."

"Central bank policymakers also fretted about the possibility that long periods of economic pain could put a strain on the financial system, which has so far fared reasonably well, though with extensive assistance from the Fed," continued the report.

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