Fed chair Jerome Powell. Photo: Federal Reserve via Getty Images

The Federal Reserve expects the economy will shrink by 6.5% this year due to the impact of the coronavirus pandemic, before growing 5% next year, according to new projections released Wednesday.

The state of play: The central bank also predicts unemployment rate will drop to a still-elevated rate of 9.3% this year. By 2022, it expects the unemployment rate to be 5.5% — still higher than the pre-pandemic rate of 3.5%.

Details: The Fed almost unanimously expects to maintain this low-rate environment as the economy begins to heal through 2022.

  • The central bank dropped interest rates to near zero in March after early signs that the pandemic would wreak havoc on the economy.
  • "We're not thinking about raising rates. We're not even thinking about thinking about raising rates," Powell said at a press conference.

Between the lines: It's the first time the Fed is releasing its economic projections this year. The numbers show the median projection among the Fed's 17-person committee.

  • The Fed didn't publish the figures in March, citing unprecedented economic uncertainty.

What they're saying: The projections show the Fed's "general expectation of an economic recovery beginning in the second half of this year, and lasting over the next couple of years," Powell said.

  • But, he noted, there's a ton of uncertainty and these projections could change.

The Fed's projections don't show expectations that the coronavirus downturn will cause permanent damage to the labor market or the economy. Its guesses for the unemployment rate and GDP growth in the "longer run" — or several years down the line — didn't budge from its pre-pandemic projections.

  • "I think we can avoid that," Powell said, referring to permanent scarring.
  • "We do that with measures that keep people in their homes and that support hiring and support growth and that avoid unnecessary business insolvencies."
  • Still, Powell noted that "well into the millions" of workers may not return to their job and that "there may not a job in that industry for them in a long time."

The big picture: Since the pandemic hit, the Fed has announced a series of measures to support key funding markets, as well as $2.3 trillion in loan programs.

  • One of them is the Main Street Lending Program, which is meant to provide loans to mid-sized companies shut out of the Paycheck Protection Program.
  • The Fed has been tweaking the terms and eligibility requirements for the program, which still hasn't launched.
  • Powell said the Fed is in "the final run-up to starting the facility." (He said on May 29 that the program was "within days" of making its first loans in the program).

Of note: Powell said the Fed was briefed on "yield curve control" at its policy meeting this week — a measure that would cap Treasury yields at a certain level (and the Fed would buy as many government bonds needed to keep the yields at that level).

  • But whether the Fed will implement this is still an "open question," Powell said.

Go deeper

Dollar weakens again as economic data improves around the globe

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The dollar is falling back toward its March lows, moving lower against all six of the world's major currencies on Tuesday. The decline has been spurred by rising stock markets around the globe, which have unwound the dollar's safe-haven appeal.

What's happening: Improving data in Europe and the U.S. have bolstered risk-on sentiment.

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NY, NJ and CT to require 14-day quarantine for travelers from hotspots

New York, New Jersey and Connecticut will impose a travel advisory and 14-day quarantine for travelers from states with high coronavirus infection rates beginning tonight at midnight, New York Gov. Andrew Cuomo announced Wednesday.

Why it matters: New York went from being the epicenter of the pandemic, with the highest rate of infections, to now having one of the lowest rates in the country. Meanwhile, many states in the South and West have seen their infection rates skyrocket as restrictions have been lifted.

How the pandemic will reshape the job market

Illustration: Eniola Odetunde/Axios

A shock to the job market as massive and as sustained as the coronavirus will leave lasting change — and damage — in its wake.

The big picture: We jumped from the best labor market in 60 years, before the coronavirus, to the worst, in April. As the country comes back, millions of jobs lost during the pandemic will never come back, and there will be massive reallocations of jobs from some parts of the economy to others.