With high levels of unemployment resulting from the economic shutdown in response to the coronavirus, and persistent low inflation, more fiscal and monetary stimulus is “completely justified,” according to the Federal Reserve Bank of Boston President Eric Rosengren.
And while he expects a rebound in the second half of the year, it will not be as robust as first expected, and the unemployment rate will still be in double digits at yearend, he told the Greater Providence Chamber of Commerce in a virtual appearance.
“My fear is that if we open up too quickly, we will see a second wave of the virus,” he said. “More fiscal and monetary help is completely justified with how low inflation and with how high unemployment is. More needs to be done, both are far from where we want to see them.”
Additional monetary and fiscal policy will “help mitigate the economic impact of the crisis, much of the path of the economy will be determined by the virus and how successfully it can be contained, either through public health or medical innovations.”
A quick, strong recovery may not be coming. Tom Kozlik, head of municipal strategy and credit at Hilltop Securities Inc., said while the May jobs report generally was a positive surprise, the state and local government sector saw job losses.
“The overall economy has a ways to go, and I think a V-shaped recovery is unlikely,” Kozlik said. “Something that looks like a swoosh is more likely, but how deep and long it ends up being is yet to be determined.”
Kozlik agreed with Rosengren that more is needed, as the labor market is still significantly impaired and questions remain about the path of the virus itself. “Another significant item to watch for is related to what Congress decides to do about additional relief and/or stimulus, as it is needed.”
Fed Chair Jerome Powell has said it could take a while for the economy to fully recover. Speaking to a video conference sponsored by the Federal Reserve Bank of Cleveland on Friday, he doubled down: “The path ahead is likely to be challenging. But given the opportunity, I’ll always bet on the American people and on the kind of community resolve and dedication we’re hearing about today.”
Rosengren said he is troubled by the recent spike of coronavirus cases in the South and Southwest, where states reopened. “So far, in the United States, efforts to contain the virus have not been particularly successful,” he noted.
South Carolina, Florida and Texas are among the states that have seen a spike in reported COVID-19 cases in recent weeks.
Current account
The U.S. current account deficit narrowed to $104.2 billion in the first quarter from a revised $104.3 billion shortfall in the fourth quarter, according to the Commerce Department. The fourth quarter deficit was first reported as $109.8 billion.
Economists polled by IFR Markets expected the deficit to be $101.8 billion.
