The US economy, battered by a the new, worrying phase in the spread of Covid-19, needs increased government spending to tide over households and businesses and broader use of masks to better control the virus, several US central bankers said earlier today.
The calls for increased government intervention came as US lawmakers and the White House resumed talks on a new government relief package, including a possible extension of unemployment benefits that expired on Friday. Two hours of talks in Washington this morning did not produce a deal.
“Four months ago, when we did the first stimulus, we thought the economy faced a pothole and the stimulus put a plate over it so we could navigate. Now escalation of the virus may be making that pothole into a sinkhole and creating a need for a longer plate,” Richmond Federal Reserve Bank president Thomas Barkin said in webcast remarks to the Northern Virginia Chamber of Commerce, Reuters writes.
“Quickly pulling away the support that consumers and businesses are receiving would be a pretty traumatic move for what’s happening in the economy.”
Echoing those sentiments, though in slightly different terms, were Dallas Federal Reserve Bank President Robert Kaplan and St. Louis Fed President James Bullard.
Kaplan pushed back on the notion that the extra $600 weekly benefits to the unemployed had made it harder for businesses to hire, while Bullard said earlier efforts to keep businesses and households whole through the crisis have paid off so far.
“We’ve looked at a number of studies, we’ve done our own work: we don’t see it as much in the data but I can tell you I’m hearing it from business people,” Kaplan told Bloomberg TV earlier Monday when asked about whether the enhanced jobless aid was deterring people from returning to work.
“While it may have made it hard for certain individual businesses to hire, it has helped create jobs, because it has helped bolster consumer spending, so the net effect still has probably been positive for the economy for employment.”
Kaplan also said he did not agree with his colleague, Minneapolis Fed President Neel Kashkari, who at the weekend said he thought the US economy should shut back down again for four to six weeks to suppress spread of Covid-19.
Instead, Kaplan said, universal mask-wearing could substantially mute transmission of the virus without a widespread lockdown. “I think we are going to have to learn to live with this virus. We are going to have to learn to re-engage in our daily activities but still control the virus,” he said. “Widespread mask-wearing is essential to that.”
