NEW YORK (MaceNews) – More fiscal and monetary stimulus will probably be needed given rising new Covid-19 cases in many states and a slower-than-hoped recovery, Boston Federal Reserve President Eric Rosengren said Friday.
Rosengren, in remarks prepared for delivery at an online event, predicted the unemployment rate will remain in double digits through year end, above the median forecast among FOMC participants, and the inflation rate is likely to remain well below the 2% target. That relatively pessimistic forecast does not incorporate a possible second wave of Covid-19 cases, he said.
“Despite …. important policy actions to date, I believe more support is likely to be needed from both monetary and fiscal policy,” Rosengren said.
“Unemployment remains very high, and because of the continued community spread of the disease, and the acceleration of new cases in many states, I expect the economic rebound in the second half of the year to be less than was hoped for at the outset of the pandemic,” he said.
“I expect the unemployment rate to still be at double-digit levels at the end of the year, given what are likely to be persistent economic headwinds from the pandemic over the second half of the year. And my own more pessimistic forecast does not fully incorporate the challenges of a second wave of the virus.”
Rosengren called May’s surprising drop in unemployment good news but he said it substantially understates the level of disruption in the job market. Additionally, while lower joblessness is “wonderful,” the economic reopening that propelled it could backfire if it has not been handled safely.
“More people returning to work is good news in the longer run only if it can be done safely and on a sustained basis,” he said.
“If workplaces reopen without the necessary health precautions, the recent increases in payroll employment could be offset by possible business closures and serious health outcomes later. The prospect of such an outcome could also sap investor, consumer, and firm confidence. If reopening can be done in ways that protect public health, then better outcomes now will also translate to better outcomes in the future.”
“With low inflation and high unemployment through this year and next, I believe additional policy stimulus is necessary,” Rosengren said.
Rosengren said the Main Street Lending Program, which the Boston Fed administers, is off to a good start, with 200 financial institutions registered to participate so far.