A surge in coronavirus cases that threatens to pinch consumer spending and job gains just as some stimulus programs are due to expire has Federal Reserve policymakers worried, with at least one pledging more support ahead from the U.S. central bank.
“We have a lot of accommodation in place; there’s more that we can do, there’s more that we will do,” Fed Vice Chair Richard Clarida told CNN International on Tuesday.
There is “no limit” to the amount of bond buying the Fed can do, he said, adding that the Fed could also ease policy further with forward guidance and will keep its lending backstops in place as long as needed.
While evidence of an economic rebound in May and June was “very welcome,” Clarida said, the Fed is following the course of the virus closely as it will determine the course of the economy.
Business owners are “nervous again,” Ralph Bostic, president of the Atlanta Federal Reserve Bank, said in webcast remarks to the Tennessee Business Roundtable. “There is a real sense this might go on longer than we have planned for.”
The next three to six weeks could prove critical in the pace of an economic recovery that Bostic suggested may plateau sooner and at a lower pace than has been expected.
At an event sponsored by the National Association of Business Economists, San Francisco Fed President Mary Daly sounded a similar tone.
After large swathes of the U.S. economy reopened and trillions of dollars in fiscal stimulus passed by Congress in March began to reach the unemployed and hard-hit businesses, the economy created 7.5 million jobs in May and June.
Those gains mean the labor market is “in better shape than I thought it might be – but it’s nowhere close to where we need to be,” Daly said. U.S. firms today employ 14.7 million fewer people than in February, government data show, and unemployment, at 11.1%, is higher than it was in any downturn since the Great Depression.
“I am assuming that we’ll level off at some level that’s not where we want to be,” Daly said, noting the “untenable” position of state and local governments, which will need to cut staff as tax revenue declines and spending on safety net services increases.
With the virus still circulating, there’s a limit to how much people will want to risk their health eating out or undertaking other potentially risky economic activity, she and others said.
“We saw reopening in May and activity started to come back pretty well,” Cleveland Fed President Loretta Mester said in a CNBC interview. “Now over the past week or so there’s been some leveling off and I think it’s probably due to an increase in cases, not only in Ohio, but across the country.”
Florida, Texas and California are among roughly two dozen states that have experienced an alarming rise in infections in the past two weeks, and their governors have forced some businesses to shut down again to quell the spread.
A Fed survey released on Tuesday morning showed Americans may be hunkering down for a longer-than-expected fight against the virus and its economic fallout.
The poll of 1,869 people, which took place between June 3 and 12 as the first signs emerged of a newly growing coronavirus caseload, showed 46% of respondents think it will take more than a year for conditions to return to normal. That is up from 35% in an April survey.
At the end of July, some of the government programs to support businesses and families during the pandemic will expire, including a $600-a-week addition to unemployment benefits that has shored up spending among low-income households particularly.
“Individuals need more help and I think state and local governments need more help,” Cleveland Fed’s Mester said, adding that her forecast, which anticipates a “long recovery phase,” assumes Congress will deliver more such fiscal aid.
If not, Richmond Fed President Thomas Barkin said on Tuesday, the economy faces “some very real risks” as some businesses and households struggle to pay bills and repay debt.
“It is pretty clear this is going to go on beyond the expiration of relief efforts,” Bostic said, adding that as that becomes clear, elected officials might “strongly consider doing more.”