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Hope in the Midst of the Storm

March 23, 2020

Most Americans have never encountered the kinds of health concerns we now face. Sobering warnings out of Italy and from our own experts have led families, businesses and local governments to take drastic measures to reduce the spread of COVID-19, or the novel coronavirus. Americans’ willingness to make sacrifices to keep ourselves and our neighbors safe may be one of our greatest reasons for hope.

Despite the markets’ disturbing performance in the last few weeks, there are also some positive elements in the economic arena. Unlike China, our economy was quite strong when the virus invaded the U.S., and unemployment was low. In fact, the U.S. economy added 273,000 jobs in February. Our stock market had enjoyed an 11-year bull run.

As COVID-19 spreads in the U.S., extreme steps are being taken and considered to lessen economic pain. On March 12, the Federal Reserve gave banks $1.5 trillion in short-term loans to support the flow of credit to companies and individuals. On March 15, the Fed dropped the benchmark interest rate to a range of 0 to 0.25 percent. This makes loans more affordable for troubled businesses and brings home mortgage rates to historic lows. The Fed also announced it would buy $700 billion in government and mortgage-related bonds.

The President signed Phase 2 of the coronavirus response into law last week. The $104 billion package primarily focused on paid sick leave and unemployment benefits. (Phase 1 focused on fighting the spread of the virus.) Expected to be much bigger, Phase 3 will likely include checks to citizens (which may include an income cap) in the near future and aid to hard-hit businesses. Federal income taxes do not need to be filed or paid until July 15.

While it’s impossible to predict how effective these measures will offset decreased consumer demand and potential job losses and supply chain disruptions, some economic analysts predict a sharp economic contraction in the first two quarters of 2020, with growth picking up again in the third and fourth quarters.1 Although a clinical trial for a vaccine is underway, it’s not expected to be available to the general public for at least a year.2

These are stressful times. But the many examples of proactive and unprecedented measures being recommended by experts and leaders and implemented by all of us bring optimism and hope. If you have financial concerns or questions you want to discuss, please feel free to call our office.