WASHINGTON: US economic recovery will be slow until the coronavirus is under control and Americans will have to manage life with the virus for at least the next several months, three Federal Reserve policymakers said on Wednesday.After rebounding strongly in May and June, economic activity began to taper off in July when an increase in infections led to new restrictions in some states and contributed to a slowdown in spending. Employment growth also slowed considerably last month, and the expiration of enhanced unemployment benefits has raised concerns that jobless Americans could start to fall behind on rent and other expenses.
Consumer spending will probably remain weak as people avoid activities that require high levels of social interaction for health reasons, Boston Fed President Eric Rosengren said during an online event organised by the South Shore Chamber of Commerce in Massachusetts. San Francisco Fed President Mary Daly, warned about the impact of the expiration of the supplemental USD600 weekly jobless benefit. “It creates the potential for a hole, a little bit of a hole, in consumer demand and consumer spending,” Daly said. “We have evidence that suggests they were spending those resources to pay rent or to buy food or to buy other consumer goods.”
Despite concerns from some employers that the benefits were discouraging people from returning to work, Daly, in a webcast discussion with the Economic Club of Las Vegas, said there was little evidence to support that claim. Both Rosengren and Dallas Fed President Robert Kaplan warned Americans would need to find ways to adapt to the risks of the virus, until a vaccine becomes available.
Kaplan, in a webcast event with the Lubbock Chamber of Commerce in Texas, said Americans need to learn to “live with” the virus, using safety measures such as masks so the economy can remain open. Daly said she expects the economic rebound will be slow and gradual, depending on the virus, and she does not expect a V-shaped recovery.
Rosengren said the US had done a poor job of containing the virus when compared to parts of Europe and that the blunders were affecting the recovery. He pointed to states that saw only a short-lived increase in economic activity after lifting restrictions too quickly while states that imposed longer shutdowns earlier are now benefitting from better health outcomes and more robust spending.
“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,” Rosengren said.
Kaplan said he expects the U.S. unemployment rate to remain elevated at 9 per cent at the end of the year, but said it could be lower if businesses and consumers take steps to control the spread of the virus. The unemployment rate in July was 10.2 per cent.