6 Highlights of the Minutes of the Federal Open Market Committee, April 28-29, 2020

The Federal Reserve Board and the Federal Open Market Committee today released the minutes of the Committee meeting held on April 28-29, 2020.

The highlights were:

(1) “The staff’s baseline assumptions that the current restrictions on social interactions and business operations would ease gradually this year, real GDP was forecast to rise appreciably and the unemployment rate to decline considerably in the second half of the year”

(2) “Under the baseline assumptions, economic conditions were projected to continue to improve, and inflation to pick back up, over the next two years. The staff observed that uncertainty regarding the economic effects of the coronavirus outbreak was extremely elevated.”

(3) “A more pessimistic projection was no less plausible than the baseline forecast. In this scenario, a second wave of the coronavirus outbreak, with another round of strict restrictions on social interactions and business operations, was assumed to begin around year-end.”

(4) “Participants commented on potential risks to financial stability. Participants saw risks to banks and some other financial institutions as exacerbated by high levels of indebtedness among nonfinancial corporations which increased these firms’ risk of insolvency.”

(5)  “The activities of some nonbank financial institutions presented vulnerabilities to the financial system that could worsen in the event of a protracted economic downturn and that these institutions and activities should be monitored closely.”

(6) “A number of participants emphasized that regulators should encourage banks to prepare for possible downside scenarios by further limiting payouts to shareholders, thereby preserving loss-absorbing capital.”