WASHINGTON (Reuters) – The US economy will have a slower-than-expected recovery amid a surge in new cases of coronavirus across the country, and a broad second wave of the disease could cause economic pain deepen again, Federal Reserve officials warned Tuesday. .
FILE PHOTO: The Federal Reserve Board building on Constitution Avenue is pictured in Washington, USA, on March 19, 2019. REUTERS / Leah Millis
One by one, the Fed’s policymakers have become more pessimistic in recent days, resetting expectations about the recovery and warning that the recent improvement in economic data, such as the increase in jobs, may be fleeting.
“The pandemic remains the key driver of the course of the economy. We are still surrounded by a thick fog of uncertainty, and downside risks predominate, ”Fed Governor Lael Brainard said in a speech at a virtual event organized by the National Association for Business Economics.
He called on the central bank of the United States to commit to providing sustained accommodation through forward orientation and large-scale asset purchases, and said additional fiscal support would be “vital” to the strength of the recovery, particularly with the first round of pandemic economic support programs will expire soon.
Since March, the Fed has cut interest rates to near zero, increased large-scale asset purchases, and launched numerous other crisis programs designed to oil the United States’ financial system and channel credit to households and businesses.
Coronavirus cases in the United States increased in 46 of 50 states last week and deaths rose nationwide for the first time since mid-April, according to a Reuters analysis.
Richmond Federal Reserve Chairman Thomas Barkin warned Tuesday that unemployment in the United States could rise again as companies adjust to a probably longer-than-expected recession, and that initiatives like the Protection Program Checks (PPP) expire.
“A group of companies large and small are realizing that this is not a two-month problem and are reformulating their business,” possibly jeopardizing two strong months of job growth, Barkin said in comments broadcast online to Charlotte. Rotary Club.
Meanwhile, small business PPP loan recipients may have kept employees on staff to meet loan forgiveness terms, but may now consider firing them as the program expires and demand remains weak.
Fed officials initially expected the virus to be rapidly controlled in the United States to allow the economy to recover quickly, and admitted that the forecasts for economic growth made at its last political meeting in June largely ignored the possibility of a second wave.
The new surge in cases has led some states to delay or pause reopens at a time when other advanced nations around the world have been able to reopen their economies more sustainably due to successful mitigation strategies.
A more “granular” health strategy, including the ubiquitous use of masks, is needed to avoid a possible economic slump, St. Louis Federal Reserve Chairman James Bullard said in comments to the New York Economic Club on Tuesday. York.
Bullard said his base case is that the economy continues to grow in the second half of the year, but “the downside risk is considerable, and better execution of a risk-based granular policy will be critical to keeping the economy out of business.” the Depression”. Bullard said. He said he expected Congress by the end of the month to pass a new “substantial” tax package to keep homes and businesses stable during the fight against the virus.
Brainard warned that a second broad wave of infections could even trigger a second downturn in activity, as well as reactivate financial market volatility at a time of greatest vulnerability.
“Non-bank financial institutions may come under pressure again … and some banks may withdraw from loans if they face increasing losses,” Brainard said.
Report by Lindsay Dunsmuir; Editing by Andrea Ricci and Jonathan Oatis
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