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Powell's October 6th Forecast by Christopher Moreira, Intern, American University


On October 6, 2020, Jerome H. Powell, Chair of the Board of Governors of the Federal Reserve System reviewed America’s economic status amidst the COVID-19 pandemic. Mr. Powell began his analysis at the beginning of 2020, before the pandemic hit. He then touched on the recession and the nascent recovery that must ensue. Mr. Powell closed with a look at what lies ahead on the road to normalcy. The speech was full of numbers and statistics that, to the casual observer wouldn’t fully explain what this means for the country. But, I can say with a fair amount of certainty that Chair Powell is wary of what's to come for our nation, which, before the COVID-19 pandemic was experiencing new highs in job creation and the stock market. Nevertheless, Chair Powell remains optimistic that the country will fully recover and return to what it once was.

In terms of the pre-covid economy, Chair Powell stated that: 

“The U.S. economy was in its 128th month of expansion—the longest in our recorded history—and was generally in a strong position. Moderate growth continued at a slightly above-trend pace. Labor market conditions were strong across a range of measures. The unemployment rate was running at 50-year lows. PCE (personal consumption expenditures) inflation was running just below our 2 percent target.” 

This was great news for Americans, who were now able to find work as well as to start businesses because of the new influx of money into the economy. Mr. Powell stated that the country's work force and the country's banking system were both strong.

Moving on to the upcoming recession, Mr. Powell noted that, so far, there hasn’t been much of a drop in the stock market. This is due, in large part, to stimulus from the unemployment packages the government provided at the start of the pandemic. Paired with stimulus checks and consistently printing of money, this is, in my opinion, creating a bubble that will eventually crash the market and result in an increase in inflation. Mr. Powell stated that “Real GDP fell 31 percent in the second quarter of 2020 on an annualized basis. Employers slashed payrolls by 22 million, with temporary layoffs rising by 17 million. Broader measures of labor market conditions, such as labor force participation and those working part time for economic reasons, showed further damage.” The massive drop in real GDP has caused a loss of jobs that may never return as businesses must either downsize or file bankruptcy in effort to remain afloat during the recession caused by this pandemic.

In conclusion, Powell laid out the blueprint for recovery. Key points in the speech included managing risks of exposure of COVID-19 to the population and that FOMC projections found unemployment declining to 4 percent, with inflation reaching 2 percent by the end of 2023. This shows promise in that the economy may be returning and bouncing back to growth. 

Powell also stated his preference for expansionary economic policies to grow the economy. By adopting these policies, we will see money flowing back into the economy. As money flows, this will continue to put money back into the pockets of the American people. 

It is also worth noting that the economy was able to maintain stock market highs during the recession. We should be wary that, if monetary policy does not keep pace, we will witness yet another crash of the nation's soon-to-be-booming economy.

Edited by William Michael Cunningham

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