Written by Jasir Jawaid
Federal Reserve Governor Lael Brainard said the U.S. economy still faces substantial headwinds from the coronavirus pandemic despite employment and economic activity rebounding faster than anticipated.
"The recent resurgence in COVID cases is a sober reminder that the pandemic remains the key driver of the economy's course," she said during a webinar hosted by the National Association for Business Economics. "A thick fog of uncertainty still surrounds us, and downside risks predominate."
She said the labor market recovery may not be sustained because the "easiest gains" of reopening businesses and easing capacity constraints have already occurred.
Regarding monetary policy, Brainard said "forward guidance constitutes a vital way to provide the necessary accommodation" when the policy rate is constrained by the effective lower bound, as it is now. But she added that, given the gloomy economic outlook, "there may come a time when it is helpful to reinforce the credibility of forward guidance and lessen the burden on the balance sheet with the addition of targets on the short-to-medium end of the yield curve."
In a separate speech during a webinar hosted by the Economic Club of New York, Federal Reserve Bank of St. Louis President James Bullard noted the recent run of positive macroeconomic news and suggested that simple mitigation measures may be used to effectively manage the disease going forward.
"This suggests a base case in which the macroeconomy will continue to build on its momentum from May and June in the second half of 2020," Bullard said. "The downside risk is nevertheless substantial, and better execution of a granular, risk-based health policy will be critical to keep the economy out of depression. "
Regarding GDP growth, Bullard noted that while growth is projected to show "substantial" contraction in the second quarter, forecasts have become less negative in recent weeks. On unemployment, he said jobs data has rebounded rapidly, which suggests that many layoffs were only temporary.
This article was published by S&P Global Market Intelligence on the S&P Capital IQ Pro platform.
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