Boston Federal Reserve President Eric Rosengren said on Wednesday (April 1) that despite the best efforts of politicians and central bankers to contain COVID-19’s economic impacts, the U.S. jobless rate seems poised to shoot way up – especially among low-wage workers.
“Unfortunately, we expect the unemployment rate to rise dramatically,” Rosengren said in remarks prepared for delivery via video to the Greater Boston Chamber of Commerce. “Social distancing is needed to avoid overwhelmed medical facilities and unnecessary deaths, but it also poses great challenges for low‐income workers, who are more likely to lose jobs and have few other resources.”
He added that worker furloughs have also already begun, “particularly in the hotel, retail, travel and restaurant industries. We’ve already seen an unprecedented rise in initial claims for unemployment insurance.”
The central banker admitted that traditional economic models “are challenged by this unique situation, [but] to me, the most important factors are how well we avoid financial spillovers, and how effective the fiscal stimulus is, as well as the progression of COVID‐19 infections.”
Rosengren’s remarks came hours after Moody’s Analytics and payroll processing firm ADP reported that private-sector jobs fell in March for the first time in a decade. Official government jobless figures for both public- and private-sector jobs are due out Friday morning (April 3), and analysts expect them to show similar pain.
The Boston Fed chief said the central bank has already moved to help lessen the coronavirus pandemic’s economic harm. For instance, he noted that the bank cut its key federal funds rate to essentially zero on March 15.
Rosengren added that the Fed has also been buying Treasury bonds and mortgage-backed securities to lower interest rates on longer-term debts like home loans. Additionally, he said the Fed has begun buying assets from money-market funds – a popular place for businesses and individuals to park cash – so that financial firms have enough cash on hand to let customers withdraw funds with no limits.
Lastly, the central banker said regulators are changing the rules to let lenders restructure loans for individuals or businesses who have temporarily lost income. For example, he said new regulations will allow banks to defer borrowers’ loan payments for up to six months.
Rosengren said such steps “will all impact the speed of the economic recovery.” He added that his view of the big economic problems currently facing America is “not a fatalistic assessment. On the contrary, it should galvanize us.”