Fed says they will keep rates low with rosy outlook. And it's still not enough for TrumpWorld.

last week, the Fed Reserve Board of Governors said that rates would stay low for the next few years, in order to help the economy out of the hole that it’s in, and get it back toward full employment.

In a set of new economic projections, most of the 17 members of the Federal Open Market Committee appeared to support keeping the federal funds rate at the zero bound through the forecast horizon of 2022. In “dot plots” mapping out each members’ forecasts, only two policymakers saw a case for hiking rates in 2022 (one of which saw four rates hikes by the end of 2022).

By keeping rates low through at least 2022, the Fed hopes it will be able to steer the economy back to its pre-pandemic shape. The decision to hold rates at near-zero was unanimously agreed upon.

The FOMC’s forecast on key economic indicators suggest that those within the central bank expect a gradual recovery.

The median FOMC participant still expects real GDP contracting by 6.5% in 2020 with the unemployment rate at an elevated level of 9.3% by the end of the year. But in 2021, the median projection has unemployment falling to 6.5% and real GDP rebounding by 5.0%.

This is a generally better forecast than what the Congressional Budget Office gave last month, particularly when it came to unemployment.

Economic projections, Fed vs CBO

GDP
2020 Fed -6.5%, CBO -5.6%
2021 Fed +5.0%, CBO +4.2%

Unemployment
End of 2020 Fed 9.3%, CBO 11.5%
End of 2021 Fed 6.5%, CBO 8.6%

Fed Chair Jerome Powell also made this comment after the Fed meeting, which struck me as odd.

What we want is investors to be pricing in risk. We’re not looking to a particular level [of interest rates],” he said.

“The concept that we would hold back because we think asset prices were too high...what would happen to the people we’re supposed to be serving?” he added.

Which people does Powell think the Fed is serving? Day traders? Banks? Does he think that rising asset prices is an automatic win for everybody, instead of something that might lead to companies deciding to pump up their stocks over paying workers, and could set up a bigger crash later that leads to more layoffs?

And yet this still wasn’t enough for President Trump.

However, CNBC points out that Powell is actually predicting a strong recovery over the next 18 months.

But the forecast also indicated gains of 5% and 3.5% in the subsequent years, which actually jibes with Trump’s assertion of “one of our best ever years” ahead. If the 2021 outlook is correct, it indeed would be the best year for the U.S. since 1984.

Thursday’s tweet marks a departure for the president, who recently laid off the Fed following months of blistering attacks. Trump had complained that the Fed was keeping interest rates too high and not doing enough to help the economy continue what was the longest expansion in U.S. history.

And what we're not mentioning is that layoffs remain high, with 12 straight weeks of more than 1 million more people filing first-time unemployment claims.

New unemployment claims in thousands

And this is before the "second wave" of economic trouble hits, where people have to pay for their June and July bills without stimulus checks, and as PPP and other one-time measures to preserve jobs runs out.

Sure, places like Wisconsin are allowing for more businesses to be open as the weather warms, but that doesn't necessarily mean that more people will get back to spending, or if businesses will find it cost-effective to keep people working. And as UW's Menzie Chinn notes in Econbrowser, some of the highest-output states in the US are now seeing their COVID 19 cases jump in June, which may lead to more shutdowns and other headwinds on the economy.

Which likely leaves it up to Congress to get more money into the hands of people who work jobs outside of boardrooms and banks. If they don't, then the Fed's estimates of a sharp recovery starting in the 2nd half of this year might look pretty foolish by the end of 2020.