Fed's Brainard Says More Spending Needed to Avoid Recovery Imbalance
By Nick Timiraos
A top Federal Reserve official warned that the U.S. economy
would face a substandard and uneven recovery without additional
government spending to shore up hardest-hit sectors from the
"Apart from the course of the virus itself, the most significant
downside risk to my outlook would be the failure of additional
fiscal support to materialize," said Fed governor Lael Brainard in
remarks set for delivery in an online discussion on Wednesday.
Ms. Brainard said robust relief efforts this spring and summer
to provide more generous unemployment benefits and grants to small
businesses had likely contributed to a stronger-than-anticipated
rebound after the coronavirus pandemic froze economic activity in
March and April.
But she warned that the current K-shaped recovery would further
exacerbate longstanding disparities in the economy and labor market
without more targeted government spending, including for unemployed
Americans and hard-hit businesses, cities and states.
"Premature withdrawal of fiscal support would risk allowing
recessionary dynamics to become entrenched, holding back employment
and spending, increasing scarring from extended unemployment
spells, leading more businesses to shutter, and ultimately harming
productive capacity," she said.
Ms. Brainard said the monetary-policy framework adopted by the
Fed in August would allow the central bank to provide more support
to the economy by keeping interest rates lower for longer than it
has in prior business cycles. Officials last month said they would
keep rates near zero until the labor market has recovered and
inflation has hit 2% and is on track to exceed 2%.
The strategy entails allowing inflation to moderately overshoot
the Fed's 2% target and could lead the Fed to raise rates more
gradually after any initial increase, Ms. Brainard said. For the
new policy to be effective, the Fed will have to "stay the course
resolutely," she said.
Ms. Brainard said the Fed would deliberate and could clarify in
the months ahead how its purchases of Treasury and mortgage-backed
securities can complement the more detailed rate guidance that
officials issued last month. The Fed is buying $120 billion in
securities a month to keep short- and long-term interest rates low
but hasn't offered as much precision about how long those purchases
Write to Nick Timiraos at email@example.com
(END) Dow Jones Newswires
October 21, 2020 09:05 ET (13:05 GMT)
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