The Federal Reserve is working to limit economic fallout from the pandemic and promote recovery, but unemployment is surging, and fiscal policy is “crucial,” Eric Rosengren, president of the Federal Reserve Bank of Boston, said Wednesday.
“The Federal Reserve is working to limit the financial and economic distress – to take actions that help avoid even higher levels of unemployment or a slower recovery,” Rosengren said in remarks prepared for delivery at an online meeting of the Greater Boston Chamber of Commerce.
“Fiscal policymakers have acted strongly with the recently passed CARES Act. We must continue to adapt as the crisis proceeds, with constant attention to the plight of workers who have been or will be laid off,” Rosengren said.
“Unfortunately, we expect the unemployment rate to rise dramatically. 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. Meanwhile, furloughs have been occurring, particularly in the hotel, retail, travel and restaurant industries. We’ve already seen an unprecedented rise in initial claims for unemployment insurance.”
“Traditional economic models are challenged by this unique situation. 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,” he added.
The public health response to the crisis, “social distancing – has stilled our strong economy, disrupting countless lives and livelihoods,” Rosengren said. “It’s also been distorting the credit and liquidity flows that underpin our economy, threatening the greater pain of a full‐blown financial crisis…Public health officials and heroic front‐line medical personnel play the most important part. Governments, civic organizations, scientific and educational institutions, and citizens also have key roles to play. And fiscal policy is crucial.“
Rosengren listed the steps the Fed has undertaken, including rate cuts, asset purchases, and the array of new credit facilities aimed at bolstering financial markets. The facilities include the Boston Fed’s own Money Market Mutual Fund Liquidity Facility to help money market funds meet the public’s demand for cash.