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Fed: Infection Spike Slows Economy, Virus to Haunt US Through 2021

Fed: Infection Spike Slows Economy, Virus to Haunt US Through 2021
(Konstantinos A | Dreamstime.com)

Wednesday, 05 August 2020 06:47 PM

A resurgence in coronavirus cases is slowing the economic recovery and the disease will continue to weigh on the U.S. economy and American life until at least the end of next year, several Federal Reserve policymakers said on Wednesday.

The U.S. economy began to grow in May and June after taking a monumental hit beginning in March, but growth stalled in July as infections spiked in some parts of the country, U.S. central bankers said.

"The issue with the resurgence in the virus is it slowed down or somewhat muted the recovery we’ve been expecting," Robert Kaplan, the Dallas Federal Reserve Bank president, said in an interview with CNN.

Jobless Americans and state and local governments will need more aid to make it through the crisis, Kaplan said. Lawmakers missed a deadline last week for extending a $600 weekly supplement to state unemployment benefits, and are in the midst of negotiating another round of stimulus.

"I believe the economy needs a continuation of the unemployment benefits," Kaplan said. "It may not need to be in the same form as it currently is, but we need a continuation."

Kaplan declined to say how much aid he thinks lawmakers should provide.

U.S. economic growth could pick up in the third quarter and reach pre-pandemic levels by the end of next year, Federal Reserve Vice Chairman Richard Clarida said on CNBC Wednesday.

Clarida said his personal forecast for the economy hasn't changed because of the recent resurgence of the virus in the United States. He said economic momentum from May through early July was stronger than he expected and that support for the economy from another fiscal package should even things out.

"It will take some time, I believe, before we get back to the level of activity that we were in February before the pandemic hit," Clarida said. "My baseline view is that we could get back to the level of activity perhaps towards the end of 2021."

Fed officials pledged at their policy meeting last week to do what they can to help the economy rebound from the recession that began in February as the coronavirus outbreak spread across the globe. The U.S. central bank has cut interest rates to near zero and rolled out roughly a dozen emergency programs to backstop financial markets and support businesses.

Asked about the tepid use of the Fed's Main Street Lending Program, which is designed to help small and mid-sized businesses, Clarida said the facilities are meant to serve as backstops and that officials are open to changing the program if needed to reach more businesses.

"I do expect activity in the program to pick up," Clarida said. "We're focused on the goal of supporting the economy and if we need to adjust our programs we will do so." 

Finally, Cleveland Federal Reserve Bank President Loretta Mester said U.S. economic activity has slowed in recent weeks as coronavirus infections have risen, and the country's reopening phase may take longer than many initially anticipated.

Some states have hit pause on their plans to reopen businesses and imposed new restrictions after seeing infections rise, Mester said, a trend that is causing consumers to cut back on spending.

"The reopening phase has proved to be challenging," Mester said in remarks prepared for a virtual event on Wednesday. "Thus, the reopening phase may be more protracted than many had anticipated when it started."

A review of high-frequency data and discussions with regional contacts show that U.S. economic activity is slowing, Mester said. For example, she said, spending on services, including money spent on travel and dining, remains well below pre-pandemic levels despite increasing in May and June.

Mester said she expects the unemployment rate to remain elevated at around 9% at the end of 2020. She projects that economic output will decline by 6% compared with the end of 2019.

"The uncertainty around this forecast is extremely high. We are in an unprecedented situation and outcomes depend not only on appropriate economic policy but also on public health considerations," she said. 

© 2020 Thomson/Reuters. All rights reserved.


   
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Economy
A resurgence in coronavirus cases is slowing the economic recovery and the disease will continue to weigh on the U.S. economy and American life until at least the end of next year, several Federal Reserve policymakers said on Wednesday.
fed, virus, economic, recovery
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2020-47-05
Wednesday, 05 August 2020 06:47 PM
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