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. 

The information included herein has been obtained from sources deemed reliable, but it is not in any way guaranteed, and it, together with any opinions expressed, is subject to change at any time. Any and all details offered in this publication are preliminary and are therefore subject to change at any time. This has been prepared for general information purposes only and does not consider the specific investment objectives, financial situation and particular needs of any individual or institution. This information is, by its very nature, incomplete and specifically lacks information critical to making final investment decisions. Investors should seek financial advice as to the appropriateness of investing in any securities or investment strategies mentioned or recommended. The accuracy of the financial projections is dependent on the occurrence of future events which cannot be assured; therefore, the actual results achieved during the projection period may vary from the projections. The firm may have positions, long or short, in any or all securities mentioned. Member FINRA/SIPC.
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