WASHINGTON- The US economy will recover more slowly than expected amid a surge in novel coronavirus cases across the country, and a broad second wave of the disease could cause economic pain to deepen again, Federal Reserve officials warned.
One by one, Fed policymakers have become more downbeat in recent days, resetting expectations on the recovery and cautioning that recent improvements in economic data such as job gains may be fleeting.
“The pandemic remains the key driver of the economy’s course. A thick fog of uncertainty still surrounds us, and downside risks predominate,” Fed Governor Lael Brainard said in a speech to a virtual event hosted by the National Association for Business Economics.
She called on the US central bank to commit to providing sustained accommodation through forward guidance 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 expiring soon.
Since March, the Fed has slashed interest rates to near zero, ramped up large-scale asset purchases and launched numerous other crisis programs designed to grease the US financial system and funnel credit to households and businesses.
US coronavirus cases rose in 46 out of 50 states last week and deaths rose nationally for the first time since mid-April, according to a Reuters analysis.
The president of the Richmond Fed, Thomas Barkin, warned on Tuesday that US unemployment could rise again as businesses adjust to a recession likely to be longer than first anticipated and initiatives like the Paycheck Protection Program (PPP) expire.
“A bunch of companies large and small are realizing this is not a two-month issue and recasting their business,” possibly jeopardizing two strong months of job growth, Barkin said in webcast remarks to the Charlotte Rotary Club.
Small-business recipients of PPP loans that may have kept employees on to meet the terms of loan forgiveness may now consider laying them off as the program expires and demand remains weak.
Robert Kaplan, president of the Dallas Fed, speaking on CNBC, cited “lots of overcapacity in the economy,” which he called “disinflationary.”
