Region’s economy on standby
Boston Fed chief says coming months ‘quite challenging’
The economy may not begin to bounce back until the second half of this year, depending largely on how quickly the coronavirus vaccine rolls out, the head of the Federal Reserve Bank of Boston said Tuesday.
“Over the next two quarters, the path of the economy is going to be very intertwined with public health,” Eric Rosengren said at a virtual event hosted by the Greater Boston Chamber of Commerce.
“Through most of last year, we were facing some very large uncertainties,” Rosengren said. “We already have two vaccines … We can see the light at the end of the tunnel.”
The stock market has reflected that optimism to some extent, particularly on news of the vaccines, he said, but the next two quarters are going to be “quite challenging.”
The unemployment rate has dropped to 6.7 percent but remains very high, Rosengren said.
“And when people become concerned about their health, they become reluctant to go out,” he said.
As a result, audio and video streaming has done well, Rosengren said, but restaurants, hotels, the arts and transportation all have been particularly hard hit, as well as brick-and-mortar stores, which have suffered because many more people now shop online.
“Overall consumption of goods — games, toys, information processing equipment — has been largely determined by how well you can consume those goods while remaining socially distant,” he said.
Many businesses have taken on debt but “fortunately” at very low interest rates, Rosengren said.
“I think it’s very appropriate the Fed has kept interest rates close to zero,” he said. “We’re committed to keeping rates quite low until we see an economy that’s more robust.”
In the coming months, the savings rate likely will decline and the consumption rate will rise, Rosengren said.
However, the longer it takes to get people vaccinated, he said, the longer it will take the economy to recover.
“Infections in the U.S. and many developed countries still remain much higher than they were at the beginning of the year,” Rosengren said. “In the U.S., deaths unfortunately have reached a new high.”
More than 22.7 million people in the U.S. have been infected, and over 377,000 people have died, according to the Centers for Disease Control and Prevention.
Even as the economy does recover, income inequality will remain, Rosengren said.
“Unfortunately, the pandemic doesn’t affect all businesses and people in the same way,” he said. “Unfortunately, those jobs (that have either been furloughed or cut) tend to be on the lower end of the pay scale … That has tended to be Latino and African-American workers.”