The & The Economy: Recovering from COVID-19

Paula Tkac, SVP & Associate Research Director

The views expressed here are my own and do not reflect the views of the Federal Reserve System or the of Atlanta. Board of Governors of the Federal Reserve System

Randal Quarles Jerome H. Powell Richard H. Clarida Vice Chair for Chair Vice Chair Supervision

Vacant Michelle W. Bowman Christopher J. Waller

2 The Federal Reserve Bank Presidents

Charles Evans Eric Rosengren Boston th 7 District 1st District

James Bullard John Williams St. Louis New York th 8 District 2nd District

Neel Kashkari Patrick Harker Minneapolis Philadelphia th 9 District 3rd District

Esther George Loretta Mester Kansas City Cleveland th 10 District 4th District

Robert Kaplan Dallas Tom Barkin 11th District Richmond 5th District

Mary Daly Atlanta th 12 District 6th District

3

COVID & the Consumer

Real Personal Consumption Expenditures Index: Feb 2020 (3mma) = 100 120

115

110

105

100

95

90 PCE 85 Durables (14%) Nondurables (23%) 80 Services (64%) 75 Jan-20 Mar-20 May-20 Jul-20 Sep-20 Nov-20 Jan-21 Source: Bureau of Economic Analysis Note: Share of total consumption shown in parentheses. 5 COVID & Workers

Index: Feb 2020 = 100 Employment by Occupation 100

95

90

85

80 Low-skill jobs (17%) 75 Middle-skill jobs (41%) 70 High-skill jobs (42%) 65 Feb-20 Apr-20 Jun-20 Aug-20 Oct-20 Dec-20 Source: Current Population Survey, staff calculations. All series are seasonally adjusted. Low-skill jobs are primarily service jobs; Middle-skill jobs include sales and office, construction, production, and transportation jobs; high-skill jobs are management, professional and technical jobs. Share of total jobs in February 2020 shown in parentheses. The classification of occupations follows Autor (2010). Cause for Optimism!

+ Additional $1.9T in Fiscal Stimulus

7 But Uncertainty Remains High

Source: Survey of Business Uncertainty conducted by the Federal Reserve Bank of Atlanta, Source: Survey of Business Uncertainty conducted by the Federal Reserve Bank of Atlanta, Stanford University, and the University of Chicago Booth School of Business Stanford University, and the University of Chicago Booth School of Business. For more information, see “Surveying Business Uncertainty” by David Altig, Jose Maria Barrero, Nick Notes: Data through February 2021. This is a plot of the subjective distribution for the Bloom, Steven J. Davis, Brent Meyer and Nick Parker, NBER Working Paper No. 25956, representative firm’s future sales growth. To calculate this distribution we gather up all the February 2020. weighted individual mass points (estimates) in a given month. Every mass point is weighted by the corresponding firm’s employment weight (truncated at 500 employees) and the probability they attach to that mass point. 8 The Challenge of Assessing Employment

9 Where has employment recovered?

Employment change by industry

percent

0

-5

-10

-15

Change from Feb to Apr -20 Change from Feb to Dec -25

Source: BLS Note: Employment share listed in parentheses 10 And where has it stalled OR still has a long way to go?

Employment change by industry percent Mining (1%) Information (2%) Education (3%) Leisure & Hospitality (11%) 0

-5

-10

-15

-20

-25 Change from Feb to Apr -30 Change from Feb to Dec -35

-40

-45

-50 Source: BLS Note: Employment share listed in parentheses 11 The Challenge of Assessing Inflation

The Atlanta Inflation Dashboard Color code: Inflation Measure January 2020 January 2021 On target: (12-month) Growth Rate -- Within 0.25 ppt of FOMC target Core PCE Index Market-based PCE Index Below target: FRB Dallas Trimmed Mean Index -- Between 0.25 and 0.50 ppt below target FRB San Francisco Cyclical Core PCE Index --- More than 0.50 ppt below target Stock and Watson Cyclically Sensitive Inflation Above target: Core CPI -- Between 0.25 and 0.50 FRB Cleveland Median CPI ppt above target FRB Cleveland 16-Percent Trimmed- Mean CPI --- More than 0.50 ppt above target FRB Atlanta Sticky-Price CPI

Source: See the Federal Reserve Bank of Atlanta Underlying Inflation Dashboard: 12 https://www.frbatlanta.org/research/inflationproject/underlying-inflation-dashboard The Fed’s Balance Sheet

13 The View from the FOMC

December 2020 SEP March 2021 SEP December 2020: FOMC Statement of Economic March 2021: FOMC Statement of Economic Projections Projections THE UPDATED MONETARY POLICY FRAMEWORK (MPF)

Longer-Run Goals and Monetary Policy Strategy EMPLOYMENT SIDE OF OUR MANDATE Framework for our decisions about appropriate Maximum employment is a broad-based monetary policy 1 and inclusive goal

➢will continue to reflect a broad array of considerations EMPLOYMENT AND INFLATION Employment can run at or above real- 2 time estimates of its maximum level ➢will not be dictated by any formula without causing concern

➢if excessive inflationary pressures were to build or PRICE-STABILITY SIDE OF OUR MANDATE inflation expectations were to ratchet above levels Following periods when inflation has been consistent with our goal, we would not hesitate to running below 2 percent, appropriate monetary act. 3 policy will likely aim to achieve inflation moderately above 2 percent for some time using a flexible form of average inflation targeting

15 Dot in December 2020 New in March 2021

The Eliminated in March ‘DOT PLOT’ 2021

FOMC, Statement of Economic Projections. December 2020 & March 2021 Dot in December 2020

New in March 2021

Eliminated in March 2021