Top Fed official says quick reopenings damaged recovery from coronavirus

A top Federal Reserve official said Wednesday that the inability of the U.S. to control the coronavirus pandemic limited the benefit of trillions in fiscal stimulus approved by President Trump and Congress earlier this year.

Eric Rosengren, president of the Federal Reserve Bank of Boston, said in a Wednesday interview with The Hill that the abrupt peel-back of restrictions imposed to slow the pandemic in the U.S. prevented record-breaking economic rescue efforts from fostering a quick recovery.

“Normally with the kind of stimulus that we’ve seen with both fiscal policy and monetary policy, you’d actually expect a V-shaped recovery,” Rosengren said, referring to an immediate economic recovery from a downturn of similar speed and scale.

“The reason we’re not seeing a V-shaped recovery and that we’re seeing a pause right now is that it’s very hard for fiscal or monetary policy to offset a public health concern,” he continued.

Rosengren is the latest in a series of top Fed officials — including Fed Chairman Jerome Powell — to stress the importance of vigorous coronavirus control measures to a full recovery from the pandemic-driven recession.

The onset of the pandemic prompted the quickest and deepest economic collapse in U.S. history. While the unemployment rate has since fallen from a post-Great Depression high of 14.7 percent in April to 10.2 percent in July, the second wave of coronavirus cases drastically slowed the pace of the recovery that began in May.

In a Wednesday morning speech, Rosengren said the swift loosening of pandemic-related restrictions across much of the U.S. in May and June undermined the success of earlier lockdowns and trillions in fiscal and monetary relief. He argued that while quick reopenings helped fuel a surge in consumer activity, the lack of precautions taken after helped spread the virus widely and delayed a full rebound from the first wave of the pandemic.

“By looking at Europe and China, and many parts of Asia that have the virus under better control, you’re seeing their economies are able to come back,” Rosengren told The Hill.

“If we continue to proceed in a way where we don’t get the pandemic under control, it’s going to be a long time before you’re going to feel comfortable going to a restaurant or a movie,” he said.

Rosengren’s comments come as the White House and congressional leaders attempt to revive failed negotiations over another round of stimulus and economic relief. Republicans and Democrats failed to strike a deal before the expirations of enhanced unemployment benefits, federal protections against eviction and foreclosure and the application deadline for forgivable loans to small businesses.

While President Trump signed several executive orders over the weekend to mitigate the economic damage, experts say they may not be legal nor effective. Republicans have also bristled at spending more money to bolster the economy after Congress had already approved more than $3 trillion in previous bills. The Fed has also purchased trillions of dollars in Treasury bonds and other financial assets to keep credit flowing through the economy.

Economists across the ideological spectrum have urged Congress to spend trillions more to bolster unemployment benefits, prevent cutbacks in local government services and keep families from falling into crushing debt and homelessness. The Fed is also facing pressure from lawmakers and experts to broaden the eligibility requirements for several of its emergency lending facilities as small businesses and local governments fail to see the same benefits as the stock market and financial sector.

Rosengren said Congress should extend support for unemployment insurance and local governments and aid for small businesses. But he warned that those measures would be ineffective without progress containing the pandemic.

“We’ve already provided the stimulus that I think would be generating a good outcome for the economy if we had gotten the pandemic under control,” Rosengren said. 

“It’s much more cost-effective to get people to wear masks and social distance than it is to shut down the economy and get large transfer payments to people,” he added. “So if you’re worried about the fiscal deficit, you should be even more worried that the pandemic is not controlled.”