One Of The Leaders Of The Fed Did Not See The Need To Increase Fiscal Stimulus
The Federal reserve leadership has been talking a lot about the need to increase government support for the economy. But on Thursday, it became clear that not everyone at the Central Bank agrees.
The President of the Federal Reserve Bank of St. Louis, James Bullard, said on Thursday that he believes a full recovery of the US economy after the recession caused by the coronavirus is possible by the end of this year. Bullard noted that such positive prospects still do not portend a change in the Fed's policy: he is not ready to discuss a possible rate increase yet. At the same time, Bullard still does not see the need to increase fiscal stimulus.
"Given my forecast and what has already happened, the anti-crisis measures of fiscal policy can be left behind," he said. According to Bullard, targeted measures can provide support, but there is no need for large-scale incentives at the moment.
Bullard is one of the Fed's oldest leaders, and his position on fiscal policy and the outlook for the economy is very different from that of his colleagues. Over the course of this week, Fed officials, starting with Central Bank Chairman Jerome Powell, have repeatedly stated that they are doing everything possible for the economy and government spending is a crucial factor for restoring activity.
The reduction of state support at the end of the summer, when the program of additional payments to unemployment benefits was completed, is of particular concern to the Central Bank's management. Many Fed officials consider such programs vital for those employees who have lost their income through no fault of their own.
On Thursday, the head of the Chicago Fed, Charles Evans, said that the curtailment of government support measures "will test the stability of the American economy." He added that "the potential downturn in aggregate demand could be quite large." "I believe that increased financial support is needed to limit further harm to households and businesses, especially in areas where economically vulnerable segments of the population live," Evans said.
"I don't think I'm The only one who thinks it's an extremely serious and unjustified risk not to extend Federal assistance to unemployed households," he said. "Even after the worst period of the crisis, the deterioration in the financial situation of families can put pressure on their spending."
The US authorities continue to discuss new measures to support the economy. If they don't come to an agreement, many economists believe the recovery in activity will slow, and the outlook will become more uncertain. Many also believe that the Fed appears to have exhausted its options, so it may have to enter uncharted territory.
"We expect a sharp slowdown in the economy" by the end of the year if the government doesn't increase spending, said Aneta Markowska and Thomas Simons, economists at Jefferies. Without these measures, consumption will weaken, and investment will decline, they add.
"Weaker data is likely to force the Fed to take action in December," economists said. The Central Bank may be forced to start buying longer-term bonds and declare its readiness to carry them out at least until the end of next year.