The report, authored by BBVA senior economist Boyd Nash-Stacey, estimates that the U.S. gross domestic product will drop by 4.7 percent in the first quarter and by 32.3 percent in the second quarter of 2020, returning to pre-crisis levels by second quarter 2022.
The Fed is expected to keep rates at the zero lower bound, and the balance sheet is expected to grow to $7.5 billion. In addition, the report indicates that long-term yields will remain close to current levels by year-end, and oil prices are likely to remain low throughout 2020.
In terms of economic activity, the report notes historic pressure building on the supply side, with the high-tech sector providing the only bright spot. The positive momentum in the housing sector has been wiped out due to lockdowns and a tepid demand-side outlook.
Labor force participation has plummeted with layoffs and furloughs, but inflows could increase if the social safety net encourages attachment. Relative to last year, the worst drop in participation rates are among the 20- to 24-year-olds, down 1.88 percentage points year over year.
The Pulse provides a detailed analysis of the economic impact of COVID-19 and the fiscal response, as well as the labor market, inflation and monetary policy.
Led by Nathaniel Karp, BBVA USA's research team analyzes the U.S. economy and Federal Reserve monetary policy. For its analyses, the economists create models and forecasts for growth, inflation, monetary policy and industries. The Economic Research team also follows a variety of issues that affect the Sunbelt states where BBVA USA operates. Follow their work on Twitter @BBVAResearch and @BBVANews_USA.
Read the full report here.
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