It is not every day that we post twice to this blog. But today's extraordinary speech by Jerome Powell, Chairman of the Federal Reserve warrants special attention.
Chairman Powell has just delivered a speech that makes clear the economy has not yet finished with its downward cycle. Tentative steps towards reopening limited parts of the economy should not be confused with the start of a recovery:
Central bankers have been known to pressure fiscal authorities and legislators to be more proactive. But in the United States, the kind of direct endorsement of yet more fiscal spending -- on top of existing COVID-19 spending, which currently totals nearly 14% of U.S. GDP ($2.9 trillion) -- underscores the level of concern regarding economic trajectories.
The Federal Reserve is not alone. As we noted on Monday, the Bank of Japan started the week ringing alarm bells as well:
The ECB's Philip Lane today completes the carillon. While reassuringly telling The Telegraph today that he expects economic data to improve over the summer, he also indicates that GDP will contract in Europe between -5% and -10%. Moreover, reopening restaurants and factories does not mean returning to anything close to 100% capacity.
Central bankers in the US, Japan, and the EU are all saying the same thing and are ringing alarm bells. Anyone who still believes that the V-shaped recovery scenario is on the table should reconsider their model parameterization immediately.
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