HOUSEHOLD, CORPORATE BALANCE SHEETS TO SUFFER HEAVILY: FED

The Federal Reserve expects household finances and business balance sheets to suffer “persistent fragilities” as a result of the shock to economic activity arising from the coronavirus pandemic, the central bank said in a report to Congress on Friday.

In its twice-yearly Monetary Policy Report to US lawmakers, the Fed also set out a litany of risks they see dogging any rebound from the cratering in output caused by widespread shutdowns imposed this spring to contain the spread of COVID-19, Lindsay Dunsmuir, Jonnelle Marte and Ann Saphir wrote for Reuters on Friday, June 12, 2020 (Saturday, June 13, in Manila.) 

“The strains on household and business balance sheets from the economic and financial shocks since March will likely create persistent fragilities,” the report said. The central bank delineated a host of other concerns, such as a highly uncertain outlook for containing the outbreak, with a substantial risk for a resurgence in infections; a potential wave of business bankruptcies - among small businesses in particular - arising from the collapse in consumer demand; uncertainty about prospects for a recovery in demand for workers and possible downward pressures on wages; major stresses appearing in state and local government finances; and a potentially costly reconfiguration of global supply chains fractured by the disruption to trade.

Moreover, the COVID-19 recession, determined earlier this week to have officially begun in February, has weighed most heavily on the critical services sector, accounting for roughly two-thirds of US economic output, and that may hamper the recovery.