ADVERTISEMENT

Fed’s Clarida Says Economic Recovery Has ‘Long Way to Go’

Fed’s Clarida Says Economic Recovery Has ‘Long Way to Go’

Federal Reserve Vice Chairman Richard Clarida said the U.S. economy faces a long and uncertain road to regaining its pre-pandemic strength despite a faster-than-expected initial rebound from the wreckage of the coronavirus pandemic.

“While economic recovery since the spring collapse has been robust, let us not forget that full economic recovery from the Covid-19 recession has a long way to go,” Clarida said in the text of remarks he’s set to deliver Wednesday at an online event organized by the Institute of International Finance.

“It will take some time to return to the levels of economic activity and employment that prevailed at the business cycle peak in February, and additional support from monetary -- and likely fiscal -- policy will be needed,” he said.

Responding to questions following his speech, Clarida said the recovery could accelerate if breakthroughs are made with a vaccine and improvements are made in testing for the virus.

Post-Vaccine Tailwind

“The arrival of a vaccine and also at-home testing, I think, together could really change the picture quite dramatically,” Clarida said, adding that he’s not predicting when those developments might occur. “But certainly, we’d have a lot of accumulated savings and I think that will be a tailwind in the economy when we get to the other side of this.”

Employment and consumption in the U.S. showed signs of a strong rebound after the pandemic brought much of the economy to a halt in March and April. That progress was aided by about $3 trillion in federal aid but has slowed in recent months as that support has expired and lawmakers have failed to agree on another fiscal package.

Of the 22 million people who lost their jobs because of the pandemic, about half have gone back to work. But the pace of new job creation has sputtered, dropping to 661,000 in September.

Fed’s Clarida Says Economic Recovery Has ‘Long Way to Go’

Clarida said he expected it may take another year before economic output returned to its pre-pandemic level, and “even longer” for employment. He also stressed the high level of uncertainty.

Consumer spending has been strong in some sectors but remains well below pre-Covid levels. Some Fed officials have warned that rent and debt delinquencies have begun to stress the commercial real estate sector and could eventually weaken small- and medium-sized banks exposed to that market.

Having lowered rates to near zero, resumed large-scale purchases of bonds and rolled out a slew of emergency lending facilities, the Fed is now seen to be in a holding pattern, waiting to see if Congress can reach a deal on new spending either before or after the Nov. 3 elections.

Clarida pledged the central bank would continue to use its “full range of tools” to support the economy.

©2020 Bloomberg L.P.