Fed official warns US fiscal support remains ‘vital’

The US economy continues to face headwinds due to the coronavirus pandemic that will make continued government support “vital,” Federal Reserve Governor Lael Brainard said Tuesday.

The recovery in the world’s largest economy “is likely to face headwinds for some time,” and with virus cases on the rise, “a second wave would magnify that challenge,” she said in a speech to the National Association for Business Economics.

“Fiscal support will remain vital.”

The Fed has pumped out trillions of dollars to keep financial markets operating, and offered huge lending programs for companies and state and local governments.

Congress meanwhile approved the $2.2 trillion CARES Act, which includes grants to companies of all sizes, direct payments to households and expanded unemployment benefits.

Describing the pandemic as “unprecedented in modern times for its severity and speed,” Brainard called for “a sustained commitment” to stimulus by the Fed “along with additional fiscal support.”

While employment and economic activity rebounded in June far faster than expected, nearly 15 million jobs have not been restored since the crisis started, and much of the pain has fallen on black and Hispanic workers.

The economic recovery is likely to take some time, especially with signs that some companies are struggling to survive.

“The recent resurgence in COVID cases is a sober reminder that the pandemic remains the key driver of the economy’s course,” Brainard said.

She signaled support for holding off on raising interest rates until inflation hits the central bank’s two percent target, even if that means it might overshoot.

That seems a distant possibility. 

The Labor Department said Tuesday that the Consumer Price Index jumped 0.6 percent in June — the biggest increase since August 2012 — as gasoline prices surged after falling sharply amid the pandemic.

But for the 12 months ended in June, CPI was up just 0.6 percent, far from the Fed’s target.