Fed / Mester: Increasing number of cases poses a risk to the economy
Cleveland Fed President Mester pointed out the risks posed by the increasing number of cases in the US for economic activity
Cleveland Fed President Loretta Mester said recent data on the re-spreading of the coronavirus posed additional downside risks to the ongoing economic recovery.
“I don’t think any of us think there will be a smooth run to increased activity, but the numbers are troubling,” Mester said in an interview with Bloomberg News.
The number of confirmed cases in the U.S. exceeded 3 million on Wednesday, with the spread of the deadly virus in the southern and western states. The state of Texas has announced a record daily number of cases. The number of hospitalized people has reached record levels in California and Arizona.
Mester added that news from the virus and health front is likely to be damaging to the economy, even if states and local officials do not reintroduce restrictions on commercial activity.
“It depends on how people and businesses react,” said Mester, “We see that some data is softening. I think the sense of poverty prevails.”
Mester said she would expect more information to decide to reconsider her economic forecasts. Cleveland Fed President expected production to shrink 6 percent this year and unemployment to be 9 percent at the end of the year before the virus begins to spread again.
Mester, who was entitled to vote this year at the Federal Open Market Committee (FOMC) meetings, added that the Fed does not need to rush for new directions and asset purchases on the future of interest.
Policymakers lowered benchmark interest rates near zero level in mid-March, launched large-scale Treasury bonds, mortgage-backed securities purchases to soothe financial markets, and protect the economy from the effects of the coronavirus pandemic. Policymakers also signaled that they would keep the monetary policy that way for a long time.
“There may be times when we want to use verbal guidance, but now I think everyone understands that we want to keep interest rates low for a long time,” says Mester.