By Michael S. Derby 

Two Federal Reserve officials at the heart of central bank decision making this year sent warnings Thursday about what lies ahead for the economy as coronavirus cases spiral higher.

Loretta Mester of the Cleveland Fed and Robert Kaplan of the Dallas Fed both expressed worry about the economy in separate Bloomberg Television interviews, but were reticent to detail what more the Fed could do to help. Both regional Fed bank presidents hold voting roles on the interest-rate-setting Federal Open Market Committee this year.

"Over the horizon, 2021 is going to be a very strong year with [gross domestic product] rising probably 3 1/2 percent or greater, although a lot of that growth will be in the back half of the year," Mr. Kaplan said in the television interview. But the challenge, he said, "is getting through the next six months" with virus cases rising and a vaccine still not widely available.

Mr. Kaplan said economic activity over the last three months of the year could once again contract, following the third quarter's rebound.

He said he wouldn't rule out the U.S. sliding back into recession. "The risks are all the downside," he said. "The only good news, if there is negative growth and the rebound stalls, our own view is it will be temporary" and not go beyond a quarter or two.

Ms. Mester said the economy needs renewed aid from the government as it continues to face big challenges in the coronavirus pandemic.

"The fact that we don't have a fiscal package is very concerning," she said. "With the disparate impact of this pandemic, that's where fiscal policy plays a role, because fiscal policy can be really targeted to households and small businesses that really need the aid." She added that states and local governments, which are on the front lines of the crisis, also need help.

Ms. Mester drew a distinction between the need for more fiscal aid and the idea of a greater response from the Fed, which already has interest rates at near-zero levels amid its continuing bond-buying stimulus and emergency-lending programs.

"We're in a good place with our monetary policy, because we are very accommodative," Ms. Mester said, and it isn't clear the Fed could do something new given the economic outlook, she said.

"You have to look across different sectors and sort of evaluate what tool will help the most, to bring up the sectors that are weakened in this and really affected by this," Ms. Mester said. "It's not clear to me that monetary policy necessarily is the right tool to address those concerns."

Mr. Kaplan said options available to the Fed to aid the economy include extending emergency-lending efforts, which he thinks should happen. The Fed also could change the types of bonds it buys, but he doesn't want the size of the program to increase from its current pace of around $120 billion a month.

The FOMC is set to meet next month amid rising anticipation that the central bank will try to engineer more stimulus from the tools it has available, as elected leaders have yet to deliver renewed aid.

Some economists believe the Fed will tweak its bond-buying stimulus program toward purchases of longer-dated securities, but there are questions about how much benefit this would bring given already low long-term borrowing rates.

Speaking with Yahoo Finance on Wednesday, Richmond Fed leader Thomas Barkin said, "Every month we engage in those asset purchases is more stimulus." He said he wasn't ready to commit to any changes in the effort now, noting real-world borrowing costs are already quite low. Mr. Barkin isn't currently an FOMC voter.

Write to Michael S. Derby at michael.derby@wsj.com

(END) Dow Jones Newswires

November 19, 2020 15:37 ET (20:37 GMT)