Get the latest market trends in your inbox

Stay on top of the latest market trends and economic insights with the Axios Markets newsletter. Sign up for free.

Please enter a valid email.

Please enter a valid email.

Subscription failed
Thank you for subscribing!

Catch up on coronavirus stories and special reports, curated by Mike Allen everyday

Catch up on coronavirus stories and special reports, curated by Mike Allen everyday

Please enter a valid email.

Please enter a valid email.

Subscription failed
Thank you for subscribing!

Denver news in your inbox

Catch up on the most important stories affecting your hometown with Axios Denver

Please enter a valid email.

Please enter a valid email.

Subscription failed
Thank you for subscribing!

Des Moines news in your inbox

Catch up on the most important stories affecting your hometown with Axios Des Moines

Please enter a valid email.

Please enter a valid email.

Subscription failed
Thank you for subscribing!

Minneapolis-St. Paul news in your inbox

Catch up on the most important stories affecting your hometown with Axios Minneapolis-St. Paul

Please enter a valid email.

Please enter a valid email.

Subscription failed
Thank you for subscribing!

Tampa-St. Petersburg news in your inbox

Catch up on the most important stories affecting your hometown with Axios Tampa-St. Petersburg

Please enter a valid email.

Please enter a valid email.

Subscription failed
Thank you for subscribing!

Please enter a valid email.

Please enter a valid email.

Subscription failed
Thank you for subscribing!

Jerome Powell testifies before Congress in June. (Photo: Tasos Katopodis/Pool/ AFP via Getty Images)

The Federal Reserve said Wednesday that the economy will shrink by 3.7% this year — a rosier outlook than the 6.5% contraction initially projected in June.

Why it matters: The economy is still wrecked by the coronavirus pandemic, but has rebounded faster than some anticipated. Signs still suggest the recovery could stall out. The August unemployment rate is already lower than where the Fed, in June, said it would be by year-end.

  • The Fed's fresh outlook sees the unemployment rate at 7.6%, lower than the 9.6% it saw three months ago.
  • "For the last 60 days or so, the economy has recovered faster than expected. That may continue or not, we just don’t know," Fed chair Jerome Powell said in a news conference Wednesday.

Between the lines: The projections came alongside the Fed's closely watched policy statement, which said it expects to keep interest rates near zero until the labor market improves. It also said the Fed won't move on rates until inflation rises to 2% and is on track to "moderately exceed" that level for a period of time.

Of note: Two Fed officials dissented against the statement.

  • Dallas Fed President Robert Kaplan wants the central bank to be more flexible with its interest rate setting path after the economy recovers and prices rise.
  • Minneapolis Fed President Neel Kashkari says the Fed should indicate that it won't move on interest rates until inflation reaches 2% "on a sustained basis."

Catch up quick: The Fed said last month it's willing to allow prices to rise above its longtime 2% target for a period without raising rates to head it off.

  • It was a massive shift in its inflation strategy. What it didn't specify was how long it'd be willing to let inflation drift higher — or how high it could go before the Fed was tempted to pump the brakes on the economy.
  • "We're resisting the urge to create a rule or formula here," Powell said.

What they're saying: Powell said more fiscal support will "likely be needed." He added that both the Fed and private economic forecasters have another stimulus package baked into their forecasts. It's just a matter of "when and how much and what will be the contents," Powell said of expected action by Congress.

  • Democrats and Republicans are deadlocked on negotiations for a stimulus deal.
  • Powell laid out the worst case scenario if no additional stimulus comes: The unemployed will be unable to find work in sectors hit by the pandemic, which will show up in economic activity, evictions and foreclosures. These are "[t]hings that will scar the economy," Powell said.

What to watch: Powell indicated that the Fed will "be making some changes," to make its Main Street Lending Program more "broadly available."

  • The Fed swept in when the pandemic started to throttle the economy with its own economic support programs, but some have so far fallen flat.
  • The Main Street Lending Program has distributed just 117 loans as of Sept. 2. In the meantime, only two entities have taken advantage of the Fed's municipal lending facility.

Go deeper

Mnuchin's plan to shift unspent Fed funds

Illustration: Aïda Amer/Axios

A move by Treasury Secretary Steven Mnuchin could handcuff his likely successor Janet Yellen's ability to immediately restart Fed economic programs.

Driving the news: Mnuchin is planning to shift $455 billion in unspent CARES Act funds into a special account that would require Congress' permission to access, Bloomberg reports.

Tracking the Dow's road to 30,000

It took 218 trading days for the Dow to hit the latest 1,000-point milestone.

Why it matters: Dow 30K is a purely symbolic milestone. The Dow hitting 30,001, for instance, is no less significant.

2 hours ago - World

Map: A look at world population density in 3D

This fascinating map is made by Alasdair Rae of Sheffield, England, a former professor of urban studies who is the founder of Automatic Knowledge. It shows world population density in 3D.

Details: "No land is shown on the map, only the locations where people actually live. ... The higher the spike, the more people live in an area. Where there are no spikes, there are no people (e.g. you can clearly identify ... the Sahara Desert)."