US Financial Strain From COVID-19 Not Over Despite Federal Reserve's Efforts - Report

WASHINGTON (Pakistan Point News / Sputnik - 12th June, 2020) US financial sector vulnerabilities are expected to be significant in the near term due to the novel coronavirus-imposed measures and financial institutions may face strain despite the Federal Reserve's wide-ranging efforts to fight the pandemic, the central bank said in its June Monetary Policy Report issued on Friday.

"The COVID-19 pandemic has abruptly halted large swaths of economic activity and led to swift financial repercussions," the report said. "Financial-sector vulnerabilities are expected to be significant in the near term. The strains on household and business balance sheets from the economic and financial shocks since March will likely create persistent fragilities. Financial institutions may experience strains as a result."

The US economy shrank 5 percent in the first three months of 2020 for its worst quarter since the 2008/2009 financial crisis. For the second quarter through June, most economists expect a double-digit contraction that when combined with the first quarter, would result in the deepest recession in US history.

Earlier this week, the Federal Reserve left US interest rates at the 0 - 0.25 percent range with Chairman Jay Powell saying he did not expect rates to rise until the end of 2022.

Meanwhile, the Federal Reserve is using its virtual limitless funds to prop up the economy and financial markets and lend to businesses caught up in the crisis.

"Despite increased resilience from the financial and regulatory reforms adopted since 2008, financial system vulnerabilities - most notably those associated with liquidity and maturity transformation in the nonbank financial sector - have amplified some of the economic effects of the pandemic," the report said.

Some small businesses and highly-leveraged firms might also have to shut or declare bankruptcy, causing longer-lasting repercussions on productive capacity, the report added.