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Fed’s Rosengren: Slowdown Evident in High Frequency Data Likely to Continue

Signs of slowing evident in recent high-frequency data are likely to persist and states are not doing enough to control the virus, Boston Fed President Eric Rosengren said Wednesday.

Rosengren, in remarks for delivery at an online event hosted by the South Shore Chamber of Commerce in Massachusetts, repeated the Fed’s message that the outlook hinges on how well the pandemic can be contained, either through public health measures, or medical innovations, but he went further in calling out states for inadequate measures to protect public health. “The forecast for the US economy this fall is quite uncertain, but my view is that the recent slowdown in economic activity that we have seen in high frequency data is likely to continue,” he said. “Limited or inconsistent efforts by states to control the virus based on public health guidance are not only placing citizens at unnecessary risk of severe illness and possible death – but are also likely to prolong the economic downturn.”

Rosengren pointed to the unemployment rate above 10 percent, and said he feared “the continued community spread of the virus … will limit the ability of the economy to recover quickly”, adding, “As a result, an increasing number of those who are currently temporarily unemployed may ultimately have to face permanent layoffs and the difficult task of finding a new job in a changed economic environment. While the fiscal and monetary stimulus has been significant, it cannot fully offset the economic drain caused by the public health crisis.”

Rosengren cited mobility and spending data showing variable performance among states in limiting infections, with states that reopened too quickly now showing the most slowing in economic activity. He also contrasted the US performance with that of Europe, where infection rates have remained lower and economic activity has recovered faster. “Taken together, these data show that states that re-opened early and quickly lifted restrictions saw a short-term increase in activity, but it was at a cost – rising rates of infections, which resulted in less spending more recently,” he said. “In short, lifting restrictions too early and too quickly hurt both the economy and public health down the road. In the Northeast, where restrictions were more substantial and lasted longer, states are now experiencing both better public health outcomes and more spending in sectors of the economy that are sensitive to social distancing. These results are somewhat parallel to the differences in outcomes between Europe and the US.”

Rosengren defended the Main Street Lending Program, which the Boston Fed administers, and said take up was rising gradually and would rise faster in the fall. He said there are now more than $856 million in loans active in the Boston Fed portal, with more than $250 million in loans committed or settled. “Much of the increase has occurred recently, and I expect we will continue to see more activity as more firms are impacted by the pandemic. Unfortunately, should the fall bring a resurgence of the virus as many epidemiological models predict, this programme may become even more essential.”


Colin Lambert

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