NEW YORK (MaceNews)– Consumer spending and the economic recovery are vulnerable if Congress and the president fail to deliver another round of federal relief spending,Richmond Fed President Thomas Barkin said Tuesday.
Barkin, responding to questions during an online event hosted by the Center for Regional Competitiveness, said consumption, especially by blue-collar workers with a high propensity to spend, has responded directly to supplemental unemployment insurance benefits. Consumption and the economy would be hurt if policy-makers don’t extend the benefits, he said.
The economy hit a pothole in response to the pandemic, and with the more recent uptick in virus cases, it threatens “to become a sinkhole,” Barkin said. The outlook depends on the course of the virus and on policy measures, he said. The Fed continues to do its part but the fiscal policy outlook is more uncertain, Barkin said.
Worries about safety are keeping many white collar workers at home and restraining their consumption, Barkin said.
“Uncertainty remains high,” he said, adding, consumers, businesses, and investors “need more confidence things are returning to normal.”
The uptick in virus cases in late June “flattened the momentum” of recovery in the first part of the second quarter. Even with some improvement in the economy and lower unemployment, the U.S. is still enduring “a downturn of historic proportions” with joblessness still comparable to the depths of the Great Depression, Barkin said.
Barkin rejected a questioner’s suggestion the U.S. is facing deflation. “We are far away from deflation – there is no evidence we face deflation,” which the U.S. has avoided since the Great Depression, he said. Disinflation, on the other hand, is a concern the Fed is addressing. “The Fed has many tools to expand the economy and raise inflation expectations,” Barkin said.
Asked to comment on the economic outlook if a vaccine becomes available and the recovery gets on track, Barkin said he anticipated “scarring in the employment market” as some workers struggle to return to their jobs. Some firms may take the opportunity to downsize, while other changes are occurring that will affect employment.
“The demand side will recover faster” than the employment market, he said.
—
Content may appear first or exclusively on the Mace News premium service. For real-time email delivery contact tony@macenews.com. Twitter headlines @macenewsmacro.