Economic Flash

Unexpected COVID-19 Outbreak Alters Growth and Rate Projections


by Craig Dismuke, Dudley Carter

Forecast Revision – Unexpected COVID-19 Outbreak Alters Growth and Rate Projections


The COVID-19 outbreak has now crossed a threshold sufficient to warrant adjustments to our 2020 economic growth and interest rate projections.  Coming into the year, we anticipated that the Fed’s Monetary Policy Framework Review, due to be completed this summer, would be the most likely catalyst for a policy rate cut in 2020.  On balance, however, we expected economic and financial conditions would warrant no changes in policy.  Trade negotiations and the election were seen as the biggest risks to stable growth.  The COVID-19 outbreak, however, has added an unexpected and increasingly significant headwind.  Through five weeks of monitoring, the virus has already spread dramatically more than the 2003 SARs pandemic and the economic impact is proving to be more consequential.  Moreover, the market response has bolstered the argument for a policy response. While significant uncertainty attends our projections given our inability to project the future path of the outbreak, we do believe that the economic consequences and market reaction have already reached levels which will warrant a policy response. As such, we now expect the Fed to ease policy at either their March 18 or April 29 meetings.  Additionally, we have adjusted lower our 1H20 economic growth projections as well as our expected path for longer Treasury yields. 



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