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US Recovery Expected to Begin in 3rd Quarter

Updated: Jul 7, 2020

Economists confirm in a survey that the US economy will be in recovery by the third quarter of this year along with a better labor market than previously expected during the coronavirus pandemic.

The National Bureau of Economic Research determined that the U.S entered a recession in February 2020. However, a monthly Wall Street Journal survey said that despite the recession, 68% of the economists expect the recovery of the economy by the third quarter. Nevertheless, 22.8% confirmed that it already began in the current second quarter.

Business and academic economists expect the gross domestic product to shrink 5.9%. However, according to the economists’ prediction of the last month’s survey, there will be a slight improvement from the 6.6% contraction to the fourth quarter of 2019. Also, they expect the unemployment rate to slightly decrease by December to 9.6% from 11.4% according to last month’s forecast.

Reducing Downside Risks

Lynn Reaser of Point of Loma Nazarene University, past chief economist at Bank of America Corp stated that the rise of the US GDP growth forecast for the next annum has already started, although it will take some time for a full recovery.

In a mid-year survey, 69% of economists said they expect the recovery to be in the form of a “swoosh”. It was named because its reminiscences the Nike logo, which indicates a significant decline along with a gradual recovery RSM chief economist Joseph Brusuelas said he is “not expecting to an extended and frustratingly slow reclamation.”

Reducing Recession Odds

For the next two years, economists expect the Federal Reserve to keep the benchmark short-term interest rate held near zero. A surveyed showed a quarterly increase by June 2022 and another by December 2022.

Federal Reserve officials concluded that the interest rates could continue to stay unchanged by 2022 and announced that they were devoted to maintaining the economy following shutdowns to contain the corona virus.

US President Donald Trump has tweeted in favor of negative interest rates, pointing out that Federal Reserve officials are inclined to lower interest rates.

1.7% of economists expected the Federal Reserve to lower its benchmark policy rate over the next two years. Responding to a separate question, none of the economists in the survey said the Fed should be negative in order to provide further economic stimulus.

Diane Swonk, Principal economist at Grant Thorton said that “the Fed is clear that the threshold for negative rate is tremendously High. Also, that they don’t do anything to cure a disease caused by an epidemic.”

The Wall Street Journal surveyed 62 economists from June 5 to 9, but not all economists responded to every question.


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