Mester Says Fed ‘Likely Not Done’ in Steps to Aid Economy
Almost 17 million people have filed for U.S. unemployment benefits in the last three weeks.
(Bloomberg) -- Federal Reserve Bank of Cleveland President Loretta Mester said the U.S. central bank has probably not reached the end of its emergency actions to shelter the U.S. economy from the coronavirus pandemic.
“I know at the Fed, we’re likely not done,” Mester told an on-line discussion Friday hosted by the City Club of Cleveland. “We’re always looking for things where if we have a tool to be able to do it, and if we think it’s needed, we’re going to do it.”
The U.S. central bank has responded aggressively to blunt the effect of the coronavirus pandemic on the U.S. economy, launching an unprecedented range of emergency programs to support as much as $2.3 trillion in loans and slashing interest rates to nearly zero.
The Fed has more firepower to bring to bear if needed, and has already flagged state and local government finances as an area that may need more support, though Mester said that the Treasury Department should play the lead role.
“This is about building a good bridge so when we get to the other side the economy is in a pretty good place to start recovering,” she said.
Even so, the economic pain is severe. Almost 17 million people have filed for U.S. unemployment benefits in the last three weeks, implying a jobless rate of around 13% or 14%, with output in the second quarter expected to shrink sharply.
Fed Chairman Jerome Powell on Thursday cautioned that the slowdown was striking with “alarming speed” and that unemployment would temporarily hit very high levels.
“We were doing very well as an economy in February, in a lot of dimensions. And now we’re shut down,” Mester said. “We’re going to get very ugly economic numbers.”
It’s not clear at this point if the U.S. will see a brisk, V-shaped recovery, a longer U-shaped rebound, or something else, Mester said. A recovery is hard to model since the economy was taken down deliberately, she said.
The 2020 FOMC voter said she wasn’t concerned about inflation at the moment, but about elements of deflation, if anything.
Her Fed colleague, Governor Randal Quarles, stressed in a separate on-line debate on Friday that businesses should not be overly pessimistic in their assessment of the outlook once the pandemic has passed.
“There is every reason to believe that the economy emerges from this in a strong place, that we can have a robust recovery,” he said on a webcast hosted by the University of Utah.
Businesses “should make conservative assumptions around the timing of events in the near to medium-term future. But they shouldn’t be pessimistic assumptions about where we are at the end of this,” he said.
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