Jerome Powell’s Tone Is Grim But He Forecasts The Economy Recovers In 20 Months

Federal Reserve Chairman Jerome Powell spoke last week predicting a “long road” to economic recovery. Powell’s speech came shortly after U.S. Bureau of Labor Statistics released unemployment data for May indicating civilian unemployment dropped from a peak of 14.7% at end of April to 13.3% at end of May. Powell acknowledged the improvement in the unemployment rate but foreshadowed that the GDP would shrink by 6.5% in 2020. Along with Powell’s speech, the Federal Reserve published an economic forecast for 2020 to 2022. While the outlook for 2020 was grim, the forecast for 2021 suggests this will be one of the fastest recoveries in memory.

Civilian Unemployment Rate, Seasonally Adjusted

(U.S. Bureau of Labor Statistics)

Unemployment spiked at end of April, jumping from 3.5% in February to 14.7% at end of April. There was some good news in May as the unemployment rate dropped to 13.3%. However, this is still a historically high unemployment rate. The May 2020 unemployment is 33% above the peak after 2008 recession and more than double the highest unemployment after 2001 recession.

The Federal Reserve released a long-term economic and unemployment outlook, providing more details for Powell’s speech. It shows the U.S. economy shrinking by 4.2% to 10% in 2020. Unemployment is projected to stay stubbornly high with estimates of 5.5% or higher through 2022. The forecast from Federal Reserve has a positive message as well; it predicts a healthy GDP growth of 5% in 2021. This implies the economic recovery would take about 20 months.

According to the National Bureau of Economic Research, since 1854 in the U.S., an economic cycle has averaged 38.7 months from trough to peak. For comparison, recoveries for the 2001 and 2008 recessions took over 120 months and 73 months, respectively.

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If the economy starts growing again in 2021 as the Federal Reserve predicts, this will be one of the fastest recoveries in recent memory.