Stocks Dive, Investors rattled as Feds Warn of Slower Economic Recovery and many Challenges Ahead

Stock market down numbers

All eyes were on the recently concluded Federal Reserve’s FOCM meeting and announcement which took place on Wednesday, June 11th. The Feds had some dire warnings and painted a bleak outlook for the US economy, saying that it could take longer, possible years for the US to fully recover from the onslaught of the Covid-19 pandemic.

Outlook and Forecast for the US Economy

The Feds believe that there will be many economic challenges ahead and is estimating that the U.S. economy (GDP) will shrink by 6.5% in 2020. They are also projecting that the unemployment rate will be around 9.3% by year-end and that millions of people will not get their old jobs back.

According to the latest Labor department report, roughly 1.5 million laid-off workers applied for U.S. unemployment benefits last week, suggesting that many Americans may still be losing their jobs.

Interest Rates will Remain Near Zero

Due to the foreseen challenges and the projected slower recovery, the Feds announced that they plan to keep interest rates near zero at 0.25% until at least the end of 2022. They also reaffirmed their commitment to do whatever it takes to support the recovery process.

Since COVID, the central bank committed billions of dollars towards supporting the economy, financial markets, businesses, etc. and they reiterated that they would maintain their unprecedented stimulus plan until the economy has fully recovered.

Stock Market Rattled

Fed Chairman Powell believes that the path ahead for the economy is uncertain and depends significantly on the COVID pandemic and whether there is a second wave. The cautious tone, discouraging economic outlook and warnings re the lasting economic risks, jolted investor optimism and rattled the already jittery stock market.

By Thursday, as investors digested the cautious commentary by the Feds, US stocks plummeted, with all three major indexes posting their biggest single-day declines since March 16. The Dow Jones Industrial Average plummeted 1,861 points, almost seven percent as the bleak economic outlook alongside concerns of rising Covid-19 cases, gave investors cause for concern.

Lower interest rates, widespread stimulus, and uncertainty tend to boost demand for safe-haven assets like gold, which is seen as a hedge against inflation and currency debasement. Gold prices rose to a one-week high early on Thursday before closing at $1,729.55 per ounce.

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