Fed Officials Warn Pandemic Response Is Hobbling Economic Rebound
By Nick Timiraos
Federal Reserve officials said a recent slowdown in U.S.
economic activity was likely to persist because of difficulties
states have encountered in suppressing the coronavirus pandemic,
which could require more government spending to support the
"Limited or inconsistent efforts by states to control the virus
based on public health guidance are not only placing citizens at
unnecessary risk of severe illness and possible death but are also
likely to prolong the economic downturn," Boston Fed President Eric
Rosengren said on Wednesday in a webinar with the South Shore
Chamber of Commerce in Massachusetts.
Mr. Rosengren said he expected the unemployment rate, which
stood slightly above 10% in July, would be slow to decline given
worsening public-health situations in some states that were quick
to lift lockdown orders in May. Easing restrictions prematurely
"hurt both the economy and public health," he said.
By contrast, Mr. Rosengren pointed to data on infection and
death rates from Europe, which imposed tighter limits on commercial
activity in the spring and has seen a stronger rebound in economic
activity in recent weeks due to much lower infection rates.
Visits by Europeans to retail and recreation locations have now
created a more robust recovery compared with the U.S., he said.
Negotiations between the White House and top Democrats over
another round of relief for households and businesses collapsed on
Friday, with each side accusing the other of not showing enough
willingness to compromise on core issues, including state and local
aid and jobless benefits, as well as the overall dollar total. A
series of executive actions President Trump took over the weekend
aimed at providing some stopgap coronavirus relief have done little
to kick-start talks.
Republicans are seeking to approve a bill that costs roughly $1
trillion, well below the $3.5 trillion that Democrats have said is
necessary. Congress has approved nearly $3 trillion in earlier
relief measures, including a large package in late March. At that
time, national leaders hoped the virus could be brought under
control in a matter of weeks, not months.
"Congress will have to build a bigger bridge...now that we know
the coronavirus is not behind us and now that we're in this for a
longer period of time than we hoped," said San Francisco Fed
President Mary Daly on a conference call with reporters on
Ms. Daly said additional relief to state and local governments
would be important to prevent deeper cutbacks in services and
layoffs of public workers. "There is not a situation where states
misspent or misallocated, " she said. "It's a pandemic. It's a
shock not of their making."
Mr. Rosengren said Wednesday worries about increased federal
debts were misplaced so long as the virus was spreading. "If you
want to make sure the debt doesn't explode, you have to make sure
you get the pandemic under control," he said.
The central bank Ëcut its short-term benchmark rate to near zero
in March and is buying $120 billion in Treasury and mortgage bonds
a month. Officials have indicated they are likely to hold rates at
their current levels for years, and they are in the middle of
discussions over how to structure any more specific guidance about
Ms. Daly said market participants appeared to understand well
the Fed's rate intentions for now, but that "there will probably
come a time when additional clarity is required."
The Fed has also established a suite of emergency lending
programs to support borrowing for cities, states and businesses.
The Boston Fed is administering the Main Street Lending Program,
which offers loans of at least $250,000 to qualified small and
The Fed will purchase 95% of eligible loans from banks and began
accepting loans last month. Some lawmakers and oversight groups
have criticized the program's slow start -- it purchased 13 loans
valued $92 million through July 31 -- and called the initiative a
Mr. Rosengren said Wednesday he strongly disagreed with that
characterization and expected the program to gradually ramp up as
lenders become more comfortable with it and as the economy faces a
more difficult recovery.
Mr. Rosengren said more than $250 million in loans have been
made under the program, and that an additional $600 million in
loans were in the pipeline. Much of the increase in lending has
occurred recently, he said.
Write to Nick Timiraos at email@example.com
(END) Dow Jones Newswires
August 12, 2020 18:42 ET (22:42 GMT)
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