I would not be betting on that V shaped recover any time soon more like a very long L.
Fed’s Stress Tests Results Based on GDP Decline of 8.5 Percent; Atlanta Fed’s GDPNow Forecast Says GDP Will Decline by 46.6 Percent
June 26, 2020
Yesterday the Federal Reserve released its highly awaited stress tests on the biggest and most dangerous banks in America. The stress test results fill an 83-page document with dozens of charts showing what would happen to the banks under a hypothetical “severely adverse scenario.”
This scenario, unfortunately, was previously prepared and pales in comparison to the actual economic damage rendered by the COVID-19 pandemic. For example, the severely adverse scenario for this year’s stress tests imagined the U.S. unemployment rate climbing to a peak of 10 percent in the third quarter of 2021. The unemployment rate is currently 13.3 percent. But far more frightening, the Fed’s severely adverse scenario for GDP imagined a decline of “8½ percent from its pre-recession peak, reaching a trough in the third quarter of 2021.”
As of yesterday, June 25, the Atlanta Fed’s GDPNow estimate was for U.S. GDP to decline by a staggering 46.6 percent in the second quarter. In a feeble attempt to compensate for the fact that its “severely adverse scenario” now looks like a cake walk compared to the reality on the ground in the U.S., the Fed added what it calls a “sensitivity analysis.” That analysis assessed how the big banks would perform under three downside scenarios resulting from the coronavirus pandemic: a V-shaped recession; a slower, U-shaped recession; and a more severe W-shaped, double-dip recession.