MANHATTAN (CN) — Wall Street had a mixed day Wednesday, as some exchanges remained flat following the Federal Reserve’s economic forecast while the Nasdaq broke the 10,000-point mark.
The Dow Jones Industrial Average and S&P 500 dropped 1% and 0.45%, respectively. Meanwhile the Nasdaq, which has received some insulation from market swings due to its tech-heavy listings, gained to close at 10,020 points, its highest point ever.
Two hours before the closing bell, the Federal Reserve predicted the U.S. economy would shrink by 6.5% this year, followed by a 5% gain in GDP net year. Unemployment in 2020 would remain high, according to the Fed’s forecast, likely remaining at 9.3% by year’s end and then 6.5% in 2021.
Investors were calmed, however, by the Fed’s dovish position on interest rates. Following a meeting of the Federal Open Market Committee, the central bank said it likely would not raise interest rates until 2023, nor would it tread into negative interest-rate territory.
“We’re not thinking about raising rates. We’re not even thinking about thinking about raising rates,” said Federal Reserve Chairman Jerome Powell during a webcast following the committee meeting. “There are just a lot of people unemployed and it seems quite likely there will be a significant group even after a lot of strong job growth that will be struggling to find jobs, and we’ll still be providing strong accommodation for that.”
In mid-March, the central bank slashed the federal funds interest rate — the rate at which banks lend their excess reserves overnight — to near 0%. The Fed repeated its mantra that it would keep the federal funds rate at that level “until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals.”
Additionally, the Fed said it would “use its tools and act as appropriate” to keep employment as high as possible and inflation at 2% and continue purchasing Treasury securities and agency residential and commercial mortgage-backed securities.
Most of the Powell’s comments echoed those he made in April. His tone was slightly more optimistic, however, due to the surprising jobs report on Friday, which showed nonfarm jobs actually rose by 2.5 million last month and the unemployment rate fell to 13.3%.
Among those questioning the Bureau of Labor Statistics’ report, the agency itself has warned the response rate on the survey was 15% lower than usual and the unemployment rate could actually be 3% higher than reported.
Powell called the jobs report “probably the biggest data surprise that anybody can remember,” noting most economists thought the unemployment rate would start to drop in June or July, not in May. “We don’t know fully know what that means, whether it’s just a timing change or whether it will prove to be much more than that,” the chairman said.
But the idea of a quick, full recovery was not one Powell entertained, emphasizing that “well, well into the millions” of workers would not be going back to their old jobs.
“Monetary policy is in a good place, and that’s well understood in the markets,” Powell said. “As we look ahead, we see the path ahead for the economy is highly uncertain and continues to depend on a really significant degree on the path of the pandemic.”
Investors also may have taken some heart from testimony on Wednesday by Treasury Secretary Steven Mnuchin, who told the Senate Small Business Committee the administration would not take its foot off the gas for further stimulus, noting small and big businesses alike “are absolutely going to need more help.”
Mnuchin credited the Paycheck Protection Program for supporting more than 50 million workers and helping to prop up the flailing economy. Claiming that the economy is now “well positioned for a strong, phased reopening,” the secretary predicted that the economy will “improve dramatically in the third and fourth quarters.”
The PPP has been beset by allegations that larger, publicly traded companies jumped the line for small business loans ahead of mom-and-pop companies that had less robust banking relations.
Mnuchin told senators on the committee, however, he had no plans to reveal the names of applicant companies or their PPP loan amounts, saying such information was “proprietary.”
Earlier in the day, markets were depressed by downbeat predictions from the Organization for Economic Cooperation and Development, which noted in its biannual economic outlook that the global economy will shrink by at least 6% this year, the most dire economic crisis since World War II.
As if that wasn’t bad enough, the group warned that, fallout from a significant second wave of Covid-19, could contract economic output by at least 7.6%, with 40 million additional workers being laid off. “If the pandemic is not brought under control, there will be no robust economic recovery,” OECD Secretary-General Angel Gurria said.
Globally, GDP is expected to grow again next year, by 5.2% in a best-case scenario where Covid-19 is contained. If the virus continues to spread in a second wave, GDP would increase only by 2.8%, the OECD forecasts. In March, the OECD had downgraded its global growth forecast to 2.4%, though at that time the virus had not yet struck most Western countries hard.
A second wave of coronavirus may not be far-fetched. Several states that reopened early have now seen spikes both in the number of cases reported and the number of coronavirus-related hospitalizations. In Texas, hospitalizations hit a new high point three days in a row, with more than 2,153 patients hospitalized with Covid-19 on Wednesday, according to the state’s health department.
Experts at the World Health Organization had to walk back comments that transmission of coronavirus by asymptomatic carriers was rare, saying the comment was a “miscommunication.” U.S. infectious disease expert Dr. Anthony Fauci said during an interview on “Good Morning America” that as many as 45% of those infected with Covid-19 are asymptomatic but can still transmit the virus to others.
Nearly 7.3 million people have been infected by Covid-19 worldwide, while 413,000 have died, according to data compiled by Johns Hopkins University. In the United States, 1.9 million are confirmed to have had Covid-19, while 112,000 have died.