With an estimated 20-22 million people laid off during this pandemic and the Federal Reserve’s projections showing it will likely take years for the economy to recover, Chair Powell emphasized the Fed’s goal is to be aggressively supportive to ensure there isn’t lasting damage to the economy and the labor market. So, while Powell emphasized that a full recovery is likely to take years, the Fed’s longer-run projections for GDP, unemployment, and inflation conveyed an optimistic message, showing almost no change from projections released last December.
Although the Fed offered no new programs at its June 2020 meeting, the bond market nonetheless rallied. It wasn’t in response to what the Fed did per se, but rather was in response to the Fed’s forecasts. Although the Fed’s indeterminate “Longer run” projections remain optimistic, its projections for the more finite interval through 2022 shows the economy remaining below full employment and shy of the 2% inflation target, and therefore correspondingly, requiring no interest rate hikes presumably not only over that interval, but beyond.