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Senior Federal Reserve leaders say high unemployment is all but certain to persist despite a surge in rehiring in May and June, and that the central bank might have to do more to help the labor market.
San Francisco Federal Reserve President Mary Daly noted Tuesday that the coronavirus pandemic has decimated important parts of the economy such as travel, tourism, hotels, restaurants and retail. Those industries lost millions of jobs in the early stages of the pandemic and will have to reimagine how they do business in a era of social distancing in order to survive.
Read:U.S. entered recession in February after end of longest expansion in history
Although they are slowly bringing jobs back, she said, many companies won’t rehire all their employees because demand has suffered such a large decline.
“We don’t know how long it will fully take to put the virus behind us,” she said in a virtual chat held by the National Association of Business Economists. “I am assuming [unemployment] will level off at someplace we don’t want to be.”
Thomas Barkin, president of the Richmond Federal Reserve, concurred. “I don’t believe my favorite restaurant will be back to full staff. I don’t think my favorite retailer will be back to full staff.”
Asked if the Fed will have to do even more to help the economy, Barkin said: “Unemployment is 11%, so yes.”
The official jobless rate fell to 11.1% in June from 13.3% in May, though the actual level of unemployment is probably at least several points higher, economists contend. Daly said the unemployment rate alone is not enough to understand “all the pain and dislocation” caused by massive job losses.
The economy shed more than 22 million jobs in March and April and has only recovered about one-third of them.
Read:U.S. regains 4.8 million jobs in June. Is rehiring poised to slow?
What worries Fed officials especially now is the recent flareup in coronavirus cases and the potential damage to a fragile U.S. economic recovery.
““There are a couple of things that we are seeing and some of them are troubling and might suggest that the trajectory of this recovery is going to be a bit bumpier than it might otherwise,” Atlanta Fed President Raphael Bostic said in an interview published Tuesday in the Financial Times.
Daly said she’s paying close attention to banks to make sure another tripwire isn’t triggered. If unemployed people can’t pay the rent, for example, that would prevent landlords from paying back bank loans and ultimately put more stress on the financial system, she noted.
Read:U.S. recoups 6.5 million jobs in May, but hiring to slow on coronavirus flareups
Both Daly and Barkin also said states and local governments are sure to get hit hard in the coming months, adding to the economy’s woes. Tax revenues have tumbled even as financial demands on government increases.
“They are going to have to make hard choices,” said Daly over which taxes to increase and what spending to cut.
One thing Fed officials are not worried about right now is inflation.
Barkin said a global slump in demand means it will be hard for most companies to try to raise prices. “It’s a low-inflation world,” he said, and will probably remain that way for the foreseeable future.
