Fed Signals Prolonged Zero Interest Rates... 100% Recession Probability Within 12 Months

FOMC Meeting Minutes Released
Bloomberg Economics Indicates Recession Avoidance Unlikely

U.S. Federal Reserve [Photo by Reuters]

[Asia Economy New York=Correspondent Baek Jong-min] The U.S. Federal Reserve (Fed) has forecasted that it will be difficult for the economy to recover sharply in a V-shaped manner following the COVID-19 pandemic. Bloomberg Economics predicted a 100% probability that the U.S. will enter a recession within the next 12 months, confirming that there is no exit from the downturn.

According to the minutes of two emergency Federal Open Market Committee (FOMC) meetings released by the Fed on the 8th (local time), participants including Fed Chair Jerome Powell shared the recognition that the crisis caused by COVID-19 poses significant downside risks to the U.S. economy. The Fed lowered the benchmark interest rate twice last month, on the 3rd and 15th, from 1.50-1.75% to 0.00-0.25%, and resumed quantitative easing (QE), expressing its determination to do whatever it takes to stabilize the market.

The minutes showed that most members supported the drastic rate cuts and suggested maintaining zero interest rates until there is a clear understanding that the COVID-19 crisis has ended, emphasizing the likelihood of prolonged zero rates. Some members expected the U.S. economy to begin rebounding in the second half of this year, but others argued that noticeable recovery would be difficult until next year. This indicates a rather pessimistic outlook from the Fed regarding the future U.S. economy. A day earlier, former Fed Chair Ben Bernanke also expressed the view that a V-shaped rebound of the U.S. economy would be difficult.

Bloomberg Economics, using its own analytical model, diagnosed that the probability of the U.S. economy entering a recession within the next 12 months is 100%. Bloomberg Economics had previously estimated the probability of recession within one year at 33% in February and 53% in March, indicating that avoiding a recession is no longer possible.

Not only the U.S. but the global economy is also inevitably facing a sharp slowdown. On the same day, Oxford Economics, a British economic research institute, lowered its global economic growth forecast for this year to -2.8%. According to major foreign media, the German economy is expected to contract by 10% in the second quarter. The French economy is already understood to have entered a severe recession, shrinking by 6% in the first quarter alone.