Central bankers who’ve spent a generation researching how their words impact the economy and honing the craft of forwarding guidance are now effectively tongue-tied by a health crisis that has no clear destination yet to guide families and investors toward.
With everything from despair to a sharpish recovery possible over the next six months, the language from Washington to Tokyo has involved broad commitments of central bank support for near future, but little precision about what will occur next or when.
The state of affairs is counter to what a rising physique of analysis says central banks ought to do in a crisis, and one the Fed, in particular, could move to correct in future weeks as its response to the pandemic approaches a new phase.
Based on a crisis playbook that was taking shape at the Fed over the last year, that next phase would involve more specific statements in regards to the scope of actions like bond purchases, how those purchases link to efforts to keep longer-term lower rates of interests, and what must happen to a sky-high unemployment rate before the central bank even considers slowing down.
Analysts feel that move by the Fed could start as soon as its meeting next month, although delegates, for now, say the outlook is too ambiguous to allow or require precise plans.
Lawmakers last week got an initial view of the pandemic’s economic downturn when the U.S. unemployment rate reached 14.7%, topping the peak in the 2007 to 2009 Great Depression. It was the first full-month tally of joblessness since the outbreak inflicted widespread remain-at-home directives in March.