Fed staff told top officials that they the projected “rate of real GDP growth and the pace of declines in the unemployment rate were faster over the second half of this year than in the July forecast, primarily reflecting recent better-than-expected data,” according to
minutes from the Fed’s September monetary policy committee meeting that were released Wednesday afternoon. Fed officials, who the minutes refer to as “participants,” agreed with the staff assessment.
“Participants observed that the incoming data indicated that economic activity was recovering faster than expected,” the minutes report. “In particular, with the reopening of many businesses and fewer people withdrawing from social interactions, consumer spending was rebounding sharply and appeared to have recovered about three-fourths of its earlier decline.”
That three-fourths recovery is well-beyond what many analysts inside and outside the Fed expected.
At the Fed’s prior meeting, in July, the Fed staff actually downgraded the expected growth for the rest of year. There was no Federal Open Markets Committee meeting in August.
“The projected rate of recovery in real GDP, and the pace of declines in the unemployment rate, over the second half of this year were expected to be somewhat less robust than in the previous forecast,” the minutes from the July meeting
The contrast can be seen in assessments of business investment and the labor market. At the July meeting, Fed officials thought “employment gains, which was quite strong in May and June, had likely slowed.”
Now they see that although they had slowed they slowed much less than thought.
“Participants observed that labor market conditions continued to improve in recent months and that the economy through August had regained roughly half of the 22 million jobs that were lost in March and April. The gains in employment over July and August were generally seen as larger than anticipated,” the September minutes report.
This positive turn in the economy is even more remarkable because it occured without the additional stimulus the minutes show Fed officials expected back in July. What’s more, cases rose–as Fed officials expected–but this did not have as much of a drag on the economy as officials thought it would.
Fed officials remain wary of the impact that pandemic could have on the economy if cases keep rising but they are no longer as worried about another nationwide shutdown.
“While the risk of another broad economic shutdown was seen as having receded, participants remained concerned about the possibility of additional virus outbreaks that could undermine the recovery,” the latest minutes say.