NEW YORK (MaceNews) – Political wrangling threatens needed fiscal support for the U.S. economy, and poses a big downside risk, Chicago Fed President Charles Evans said Thursday.
In unusually blunt language, Evans called out politicians for lack of action, saying the expiration of an array of federal programs threatens the recovery, and that more fiscal support was likely to be needed, alongside monetary policy.
“Partisan politics threatens to endanger additional fiscal relief,” Evans said in remarks prepared for delivery at an online event sponsored by the Lakeshore Chamber of Commerce.
“A lack of action or an inadequate one presents a very significant downside risk to the economy today,” Evans said.
“The expirations of expanded unemployment insurance provisions, Payroll Protection Program (PPP) lending and restrictions on some layoffs for firms receiving special industrial relief aid loom large for the economy,” Evans said.
“These reductions will test the true resiliency of the U.S. economy. The potential hole in aggregate demand may be large, and in my view more fiscal relief will be needed in order to limit further damage to the economy.”
Asked in session with reporters, after his speech, how the Fed would boost the economy if more stimulus is needed, Evans said, “It’s too early to say.”
“The lower for longer is a big part of it,” he said, “the forward guidance that indicates that will be the policy as long as appropriate, and that we mean it for sure.”
He added, “How large the asset purchases would have to be, how large our balance sheet would have to be, I don’t know.”
Evans said fiscal support and virus control are both needed for recovery, and that rising virus infections were slowing reopenings.
He said the economy would show a big bounce in the third quarter after its historic contraction in the second quarter, but that growth would slow significantly in the fourth quarter, and would not recover to pre-pandemic levels until late 2022. Progress toward reaching the Fed’s inflation target is also likely to be delayed, he said.
Slower fourth-quarter growth will reflect rising virus counts that are hurting reopening plans, he said.
“As I noted before, I expect the third-quarter growth number to be big simply because of the restart of the economy from the most severe shutdowns of last spring,” Evans said.
“After this, I expect more moderate growth in the fourth quarter, with the level of GDP still about 5 percent below its pre-pandemic level at the end of this year.”
Evans noted projections among non-Fed forecasters center on a 21% growth rate in the third quarter. “On its own, a number that large would be remarkable and cause for celebration,” he said.
“However, even with this anticipated eye-catching rebound, the level of GDP would still be about 5 percent below its pre-pandemic level. Furthermore, rising virus counts in some locations have delayed or reversed many reopening plans, and we are undoubtedly looking at much, much more modest growth in the fourth quarter.”
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This story has been updated with quotes from Evans’ Q&A with reporters.
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