New numbers released by the U.S. Commerce Department Wednesday morning showed the nation's economy shrank at a 4.8% annual rate last quarter.
The downturn is being attributed to the coronavirus, as the pandemic shut down much of the country and began triggering a recession that will end the longest expansion on record.
Americans are starting to have 'quarantine fatigue,' study says
Widespread business shutdowns have caused roughly 30 million workers to lose jobs over the past month and a half. As layoffs mount, retail sales are sinking, along with manufacturing, construction, home sales and consumer confidence.
During two emergency meetings in March, the central bank cut its benchmark rate to a range between zero and 0.25% . It has also announced nine new lending programs to pump cash into financial markets and provide support to large and medium-sized businesses as well as cities and states.
American factories have worst month since 1946
The economic picture is expected to grow ever darker, with the economy forecast to contract at a shocking 30% to 40% annual rate in the April-June quarter. The unemployment rate could reach 20% when April's jobs report is released next week.
Chairman Jerome Powell is holding his usual news conference, this time virtually, rather than on site. Powell will likely fill in details on some of the nine lending programs the Fed has launched to try to aid the economy and to keep rates low in the face of the coronavirus-induced downturn.
The central bank has already slashed its benchmark interest rate to near zero and escalated its purchases of Treasury and mortgage-backed securities to pump cash into financial markets to smooth the flow of credit. It has also said it will buy corporate bonds and lend to states and cities — two actions it has never previously taken.
Small business aid program set to run out of money
As economic activity has collapsed, inflation has also begun to fall. Economists expect it to drop below 1% by next year, far under the Fed's 2% target level. That poses another problem for the Fed: Declining prices can eventually lead consumers to delay spending, thereby slowing the economy further.
Earlier this month, as part of a $2.3 trillion lending program, the Fed said it would buy municipal bonds issued by state and local governments, up to $500 billion. It also unveiled a Main Street Lending Program, which will lend $600 billion to medium-sized companies of up 10,000 employees.
These loans are intended to support mostly companies that are too large for the government's small business lending program, which targets those with fewer than 500 workers. Companies that borrow from the Main Street program must "make reasonable efforts" to retain their workers, the Fed says, and cannot repurchase their shares or pay dividends. The Fed has said it will disclose the recipients of its Main Street loans.