Upsurge in COVID-19 infections likely to be persistent risk for U.S. economy, says Fed official

Washington: A renewed upsurge in COVID-19 infections is likely to be “a persistent risk” for the U.S. economy until a vaccine has been developed, a senior U.S. Federal Reserve official said.

“The improvement in financial conditions should further support a rebound in economic activity backed by fiscal support and a further relaxation of virus-related restrictions,” Kansas City Federal Reserve Bank president Esther George said in remarks prepared for a virtual event held by the Economic Club of Kansas City. “However, there are a number of risks that could hold up the recovery,” Ms George said, noting the most important risk for the U.S. economy is the course of the virus itself.

“A renewed upsurge in infections and resumed social distancing, either mandatory or voluntary, is likely to be a persistent risk, at least until a vaccine has been developed or treatment options sufficiently improve,” she said.

Putting aside the direct effects of the virus, the Fed official noted that “there are other elements of the health crisis that are likely to prolong the recovery.”

“One risk is that consumers and businesses react to the new uncertainty introduced by the virus by pulling back on consumption and investment with the goal of building precautionary buffers against future disruptions,” she said, adding such a pullback can hamper growth across the wider economy.

Ms George also said it is appropriate for the central bank to wait for a while before taking any further monetary policy measures.

“Overall, it might be a while before the dust settles and we gain insight on whether further accommodation is necessary or not,” she said, noting Fed officials could “get more clarity” about the impact of fiscal stimulus and the central bank’s actions as the economy’s reopening progresses.

“I am also realistic that the extraordinary uncertainty about the path of the pandemic over the second half of the year and the economic outlook will require a fair amount of patience and wisdom as we navigate the likely long-lasting implications of the coronavirus shock,” she said. Ms George’s remarks came as COVID-19 cases are rising rapidly in many U.S. states, several of which are seeing record highs. Economists and public health experts have warned that a hasty reopening of the economy could trigger a second wave of infections, which could reverse economic recovery.

The number of COVID-19 cases in the United States topped 2.4 million on Thursday, reaching 2,404,781 as of 3.34pm (1934 GMT), according to the Centre for Systems Science and Engineering at Johns Hopkins University.

2.4 million the number of COVID-19 cases in the United States as of Thursday, according to the Johns Hopkins University.