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Reopening the Economy, Unemployment and Fed Meetings

Steve Skancke
June 8, 2020

by: Steven L. Skancke, Ph.D., Chief Economic Advisor at Keel Point and formerly White House and Treasury Department Staff Member

We’ve seen both positive employment and market news. The big question is, what can we expect the Federal Reserve to do next? Steven L. Skancke, Chief Economic Advisor at Keel Point, addresses some of the frequently asked questions he is receiving in June 2020.

#1- What can we expect from the Fed’s FOMC meetings June 9-10, 2020?

  • The Fed meetings will open with a positive economic and financial market news backdrop.
  • Fiscal and monetary stimulus programs so far are about $10 trillion in their combined potential effect – about 50% of the size of the US economy, with additional fiscal stimulus expected and Fed officials reiterating at every opportunity that it will do whatever it takes to mitigate the economic downturn and support the recovery.
  • In addition to its eleven emergency credit facilities and its commitment to unlimited bond-buying across market sectors and quantitative easing, the FOMC has previously discussed: introducing forward guidance, more large-scale purchases of Treasury securities, yield curve control targets for long yields.
  • With currently low yields across maturities, the most likely focus of Fed action is further implementation of its emergency credit facilities. Only 3 of its 11 announced programs have been started, and its still dormant Main Street Lending facilities have a $650 billion allocation.
  • The FOMC could also help by publishing its currently discontinued.

#2 – All states reopening have positive economic results but confound economic data reporting.

  • Reopening with new COVID-19 infections declining has positive but confusing jobs impact:
    • 2.5 million increase in May payroll employment reported on June 5.
    • Unemployment rate drops to 13.3% in May, vs expectation that it could reach 20%
    • New Jobless Claims are lower than prior week, but add up to more than 42 million lost jobs over the past 11 weeks, with continuing unemployment insurance claims down to 21 million from almost 25 million.
    • Labor Department cautions that survey process problems show another 3% likely unemployed but not reporting so. In addition, differences in reporting frequency, survey results and data sources lead to conflicting results.
  • Q2 US GDP growth is expected to be better than previously estimated: down 24%-40% vs down 48% annualized.

  • Small Business Optimism index is up and Consumer Confidence is up, showing 6-month expectations above March and as high as September 2019.

  • New Home Sales are up 1% in April vs a forecast for being down 22%.

  • Re-opening results reflected in high-frequency data are showing good news:

    • Rail Car Traffic, Hotel Occupancy, Hotel Revenue / Room, US Supply of Motor Gas and TSA Checkpoint data all are increasing

    • Credit and Debit Card spending with the card present reflects reopening spending.

#3 – What About Financial Markets?

  • S&P 500 dropped 34% from its February high to March 23 and since has rebounded 42%. Dow lagging slightly and NASDAQ is positive year to date.
  • Financial markets see this recession as very different: its cause is known, with a beginning and end, there is comfort in massive fiscal and monetary stimulus packages in the US and abroad, and there is growing belief that vaccines are coming soon.

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