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A recession of “historic proportions” could take another turn for the worse if a stalemated Congress fails to provide more financial aid to beleaguered workers and businesses hammered by the coronavirus pandemic, the president of the Richmond Federal Reserve warned.
Thomas Barkin, chief of one of 12 regional branches of the central bank, sounded an alarm at a “digital town hall” held on Tuesday by the Center for Regional Economic Competitiveness.
Senior Fed officials have become increasingly alarmed by the standoff among Democrats and Republicans over the size and scope of the next financial aid package, including an extension of federal unemployment benefits. Normally very reticent to give advice to Congress, they’ve been relatively open in their views that the economy needs more help from Washington.
Chicago Fed President Charles Evans called the impasse “an unfortunate development” in an interview Sunday on CBS’s “Face the Nation.”
“Another support package is really, in my opinion, important,” Evans said.
Barkin has been similarly outspoken. He’s said that what initially seemed like an economic pothole has turned into a sinkhole. Without the right stimulus, he said Tuesday, the economy could suffer a relapse.
Read: The economy took another body blow from Covid-19 in July. Just how bad was it?
In an attempted end-run around Democrats, President Trump over the weekend signed a series of executive orders that aim to protect renters, student borrowers and the unemployed. Included in his orders was an extension of federal unemployment benefits at a reduce rate of $300 from an original $600.
Democrats, some Republicans and many economists say that’s not enough. It’s unclear if the parties will resume negotiations.
Lower unemployment benefits would especially hurt blue-collar workers, Barkin said, while more economic uncertainty could deter white-collar employees who feel more secure in their jobs from spending extra money.
Even if a vaccine is developed, Barkin suggested the labor market could show visible scars for quite some time, a warning that’s been echoed on Wall Street.
See: U.S. will have a delayed effect of ‘seeing the normal effects of recession,’ says JPMorgan’s Dimon
Some companies may have discovered they can make do with fewer workers, Barking suggested, while others would be hesitant to go back to prior employment levels until demand for goods and services returns to normal
Barkin also said he saw little evidence of broad U.S. inflation in goods and service despite the Fed dropping a key interest rate to near zero and Washington spending trillions to combat the virus. Yet he also acknowledged that low rates may be “encouraging demand for stocks” — what some critics call a form of “asset inflation.”
Read:Wholesale prices surge 0.6%, but don’t be fooled: Inflation no threat to the economy
The U.S. stock market DJIA, +0.65% has rebounded sharply from pandemic lows and the Dow Jones Industrial Average is only a few thousand points off its record high and the S&P 500 SPX, +0.13% within striking distance of its all-time high.
