News ID: 272470
Published: 1045 GMT August 04, 2020

Fed policymakers call for fiscal support to save US economy

Fed policymakers call for fiscal support to save US economy
Federal Reserve Board building in Washington, D.C., US (REUTERS)

The US economy, battered by a resurgence in the spread of COVID-19, needs increased government spending to tide over households and businesses and broader use of masks to better control the virus, US central bankers said.


The calls for increased government intervention came as US lawmakers and the White House resumed talks on a new government relief package, including a possible extension of unemployment benefits that expired on Friday, reported.

“The ball is in Congress’ court,” Chicago Fed President Charles Evans told reporters on a call. “Fiscal policy is fundamental to a better baseline outlook, to a stronger recovery and getting the unemployment rate down, people back to work safely, and ultimately reopening the schools safely.”

Without more government aid, Evans said, “aggregate demand trouble is brewing.” Translated for non-economists: People could stop spending and the bottom could really fall out of the economy.

Or, as Richmond Fed President Thomas Barkin put it, “quickly pulling away the support that consumers and businesses are receiving would be a pretty traumatic move for what’s happening in the economy.”

The full court Fed press for more government spending came as Republicans appeared reluctant to spend much more than the $3 trillion Congress had already committed to bolstering the economy in the face of the virus. But things have gotten worse since then, Barkin said.

“Four months ago, when we did the first stimulus, we thought the economy faced a pothole and the stimulus put a plate over it so we could navigate,” he told the Northern Virginia Chamber of Commerce. “Now escalation of the virus may be making that pothole into a sinkhole and creating a need for a longer plate.”

Echoing those sentiments in slightly different terms were Dallas Federal Reserve Bank President Robert Kaplan and St. Louis Fed President James Bullard. Kaplan pushed back on the notion that the extra $600 weekly benefits to the unemployed had made it harder for businesses to hire, while Bullard said earlier efforts to keep businesses and households whole through the crisis have paid off so far.

“We’ve looked at a number of studies, we’ve done our own work: we don’t see it as much in the data but I can tell you I’m hearing it from business people,” Kaplan said when asked about whether the enhanced jobless aid was deterring people from returning to work.

“While it may have made it hard for certain individual businesses to hire, it has helped create jobs, because it has helped bolster consumer spending, so the net effect still has probably been positive for the economy for employment.”

Kaplan also said he did not agree with his colleague, Minneapolis Fed President Neel Kashkari, who at the weekend said he thought the US economy should shut back down again for four to six weeks to suppress spread of COVID-19.

Instead, Kaplan said, universal mask-wearing could substantially mute transmission of the virus without a widespread lockdown. “I think we are going to have to learn to live with this virus. We are going to have to learn to re-engage in our daily activities but still control the virus,” he said. “Widespread mask-wearing is essential to that.”

Bullard, too, emphasized mask-wearing as a significant risk-management tool, especially as he does not expect health officials to be able to reduce disease transmissions to zero because it is so contagious. He also warned against placing too much emphasis on the development of a successful vaccine.

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