In light of Covid recession, Fed eases stress test scenario

The worst-case stress scenario the Federal Reserve will subject banks to this year assumes a shallower drop in economic output than last February’s simulation, reflecting the agency’s policy of reducing the severity of its annual examinations when the economy is in recession.

Real US GDP under the 2021 severely adverse scenario is assumed to drop 4% from Q4 2020 to its trough in Q3 2022. Under the February 2020 scenario, the fall was a much sharper 8.5%. However, the GDP starting point for this