“The recovery is likely to face headwinds (…) and a second wave would amplify this challenge. Public support will remain vital, “said Governor Lael Brainard.
–
Budget support remains “vital” to allow the US economy to get through the COVID-19 crisis, an official of the Federal Reserve (Fed) said on Tuesday, also alerting to the danger of a second wave of contamination.
“The recovery is likely to face headwinds (…) and a second wave would amplify this challenge. Public aid will remain vital, “said Lael Brainard, Fed Governor, at a virtual conference of the National Association for Business Economics (NABE).
According to her, “the rapid and strong rebound in activity is due in no small measure to considerable and rapid budgetary support”.
The US economy showed signs of a recovery in May and June. Unemployment, which had climbed to 13.3% in May, fell again in June to 11.1%.
The federal government has implemented financial support measures for businesses and individuals, and the Fed has notably allowed banks to continue lending money. For Lael Brainard, “we observe a correlation between the arrival of these payments and actual spending”, and “an impact on the small business sector”, limiting unemployment.
In the case of a second wave of contamination, this support would “both meet immediate demand and avoid long-term damage to the productive capacity of our economy”.
Some states in the country, such as Texas, Florida or California, had chosen to restart their economy, and today see an explosion of Covid-19 cases, hospitalizations and deaths.
“The resumption of activity earlier than expected was accompanied by a sharp increase in the spread of the virus in many regions. Uncertainty will remain high as long as the pandemic weighs on the economy, “warned this official of the American Central Bank.
“And even if the spread of the virus slows down, the recovery is likely to face difficulties related to reduced activity and adjustment costs in many sectors, as well as reduced incomes for many consumers and businesses”, she added.
“A wave of bankruptcies is possible,” said the official.
And while the country was shaken in early June by demonstrations against inequality between white workers and black workers, she also warned of the importance of having a healthy economy.
“An economy that remains weak risks aggravating inequality, which is particularly worrying, given the time it took to see the gap begin to narrow between these groups during the last economic recovery”, following the Great Recession of 2009, she said.
Lael Brainard has also ruled out, as the president of the institution Jerome Powell has already done on numerous occasions, the implementation of negative rates in the image of what certain central banks, like that of the Japan: “the cost / benefit balance is not attractive in the context of the United States”.
The Fed lowered its key rates to zero in mid-March, with the arrival of the pandemic in the country.
–
