Fed’s Brainard: Economic Recovery So Far Could Be Temporary

Federal Reserve Governor Lael Brainard said the road to recovery for the U.S. economy won’t be an easy one, according to The Wall Street Journal (WSJ).

Brainard said the apparent steps toward recovery in recent months were due largely to the federal support like the CARES Act, including the Paycheck Protection Program (PPP), extra unemployment benefits and one-time $1,200 stimulus checks. But that might not last much longer.

“The recent resurgence in COVID cases is a sober reminder that the pandemic remains the key driver of the economy’s course,” she said, according to WSJ. “A thick fog of uncertainty still surrounds us, and downside risks predominate.”

According to data by Fed economists, the gains in jobs in May and June may not be permanent as the virus continues to linger. There were 7.5 million jobs added in May, but the economy is still 14.7 million jobs short of where it was before the pandemic, WSJ wrote.

Brainard said some industries would be better-equipped to recover than others, according to WSJ. Manufacturing and construction, for example, are more likely to withstand the economic turmoil than customer service jobs, which are at the mercy of social distancing requirements.

Brainard, whose rare speeches on the state of the economy are usually taken very seriously, said the best thing for the Fed to do would be to make concrete plans on how to keep the interest rate near zero, WSJ reported. The answer may be in abandoning a policy that has led the Fed to pre-emptively withdraw support to avoid rising inflation for years.

Brainard pointed to research showing that the Fed would benefit from not raising interest rates until inflation hits 2 percent. That could afford the bank a modest and short-lived overshoot of its formal target, and it would also offset weak inflation ratings, WSJ wrote.

The pandemic has hit the U.S. economy hard, with deficit levels now over $3 trillion, the largest deficit since the end of World War II, and it could rise even more with new financial aid programs passed by the government.


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