MNI POLICY: SF Fed: Several Years Before Economy At Potential

By Greg Quinn

     SAN FRANCISCO (MNI) - Following are highlights of the San Francisco

"FedViews" report published Monday:

     Thomas M. Mertens, vice president at the Federal Reserve Bank of San

Francisco, stated his views on the current economy and the outlook as of July 9,

2020.

     *Gross domestic product fell by 5% at an annualized rate during the first

quarter of 2020, and we expect a substantially larger decline in the second

quarter. 

     *Barring a major second wave of infections, the U.S. economy should start

its recovery during the second half of the year. But it will likely take a few

years until the U.S. economy has fully caught up with its potential. A

pronounced second wave, however, would likely lead to a deterioration of the

overall economic outlook and delay recovery. Overall risks are currently tilting

towards the downside. 

     *Over the next few years, we foresee a gradual decrease in unemployment,

reaching a level of around 6% by the end of 2022, still well above the levels

prior to the pandemic's onset. 

     *We expect inflation rates to remain below the Federal Open Market

Committee's (FOMC's) 2% target rate in the near term and increase gradually

toward the target once the recovery is under way. 

     *The two-year Treasury yield is currently trading within the target range

of the federal funds rate, indicating that investors expect the policy rate to

stay at the lower bound for an extended period of time. 

--MNI Ottawa Bureau; +1 613-314-9647; email: greg.quinn@marketnews.com

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