The Fed’s Unanswered Questions Are Piling Up

On Wednesday, Federal Reserve Chair Jerome Powell served up some cold, hard reality, saying the U.S. economy would shrink by 6.5% in 2020 and take two years to rebound. Today, stocks tumbled to a 10-week low, not helped by intensifying fears of a second wave of coronavirus. President Donald Trump took to Twitter to disagree: “We will have a very good Third Quarter, a great Fourth Quarter, and one of our best ever years in 2021.”

Did Powell sidestep too many questions? Is the Fed choosing banks over people? Is Powell allowing even bigger bubbles than Greenspan? Bloomberg columnists took a close look at what Powell said, and what he meant.

Fed Shoots Down Notion of a V-Shaped Recovery: The Fed left unanswered two critical questions: How far could its asset purchases ultimately go and what does the disconnect between Wall Street and Main Street mean for future well-being? “The most important underlying message of Wednesday’s Fed meeting — the importance of a comprehensive policy approach that deals more effectively with productivity, employment, inequality and genuine financial stability — is also what would allow the inherent contradictions and unanswered questions to be resolved in a satisfactory and orderly fashion.” – Mohamed A. El-Erian

The Fed Is Choosing Banks Over People: The Fed has two aims: maximum employment and stable prices. Yet the central bank’s latest economic projections suggest it won’t meet either of those goals in the next year and a half. “The Fed can help the American public in a time of obvious and dire need, or it can make sure that shareholders in large financial institutions don’t suffer too much of a loss. Choosing the latter option seems like a clear abrogation of its statutory responsibilities.” – Narayana Kocherlakota