Fed’s Rosengren: Pandemic will limit the ability of the economy to recover quickly

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The COVID-19 virus is not going away and the recovery will be a marathon, not a sprint, as many would want.

Two regional Federal Reserve Bank heads spoke at separate virtual events, giving an update on the economy’s recovery and offering thoughts about what lies ahead.

“Unfortunately, the economic outlook is being driven by the course of the pandemic, and much depends on how successfully it can be contained, either through public health or medical innovations,” said Eric Rosengren, president of the Federal Reserve Bank of Boston while on a Zoom call hosted by the South Shore Chamber of Commerce. “The forecast for the U.S. economy this fall is quite uncertain, but my view is that the recent slowdown in economic activity that we have seen in high frequency data is likely to continue. Currently, we have an unemployment rate above 10 percent, and because of the continued community spread of the virus, I am concerned that the pandemic will limit the ability of the economy to recover quickly.”

He added that the path of the economy is solely “dependent” on the path of the coronavirus.

“People have changed their habits and its effecting the economy. While the fiscal and monetary stimulus has been significant, it cannot fully offset the economic drain caused by the public health crisis,” Rosengren said. “Limited or inconsistent efforts by states to control the virus based on public health guidance are not only placing citizens at unnecessary risk of severe illness and possible death — but are also likely to prolong the economic downturn.”

The president of the Federal Reserve Bank of Dallas, Rob Kaplan, said Americans will have to “learn to live" with the virus as they will “most likely” spend most of 2021 with it.

“This will not be a sprint like we all hoped for at the beginning, it is a marathon and we need to be prepared to live with the virus for a while,” Kaplan said on a Zoom call hosted by the Lubbock Chamber of Commerce.

CPI
The consumer price index increased 0.6% in July after a 0.6% rise in June, according to the Labor Department.

Economists polled by IFR Markets expected it would gain 0.3%.

“Higher prices at the gas pump accounted for about a third of those gains, food prices at the grocery store fell but remained elevated and medical care costs are also accelerating,” tweeted Diane Swonk, chief economist for Grant Thornton. “Overall inflation rose 1% from a year ago. Core inflation, excluding food and energy, rose 1.6% from a year ago. Medical services are up nearly 6% from a year ago, which hits retirees on fixed incomes harder.”

In the past year, CPI grew 1.0%, while economists’ expectations were a drop of 0.7%.

Core CPI was 0.6% higher in July, marking its highest increase since January 1991 and the second month in a row of gains.

Economists expected an increase of 0.2%.

Core CPI in the last year is up 1.6%, compared to the 1.2% economists anticipated.

“The sharp acceleration in consumer prices in June and July, consumer inflation is expected to remain moderate over the near term amid the considerable slack in the U.S. and global economy,” said Scott Anderson, chief economist at Bank of the West.

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COVID-19 Coronavirus Federal Reserve Bank of Boston Federal Reserve Bank of Dallas Eric Rosengren Robert Kaplan
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