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DERA Economic and Risk Outlook – April 2020

DERA Economic and Risk Outlook – April 2020

Economic Activity in the United States and Globally is on Pause to Battle the Coronavirus (COVID-19) Pandemic: To combat the coronavirus pandemic, policymakers have enacted stay-at-home orders for nonessential workers and encouraged citizens to practice social distancing. These actions, while necessary for public health, prevent many consumers and firms from engaging in their typical, day-to-day economic activities. In anticipation of a sharp slowdown in economic activity, during mid-March U.S. equity indices declined, firm default probabilities spiked, and financial market volatility surged as investors expected starkly lower corporate profits and revenues. In addition to reducing profits, lower revenues also render debt service less certain, leading to increased interest rates for lower rated debt and widening credit spreads that have persisted through mid-April. As the coronavirus-induced economic downturn unfolded, initial unemployment claims, often a leading economic indicator, spiked. In response to the crisis, both the Federal Government and the Federal Reserve (Fed) have implemented unprecedented economic and monetary stimulus