The Fed: Fed’s Mester calls for more fiscal support to ward off ‘dire scenarios’ facing U.S. economy

The Fed

Cleveland Fed president says help needs to be bigger than first imagined

Cleveland Fed President Loretta Mester said the economy could contract at around a 30%.annual rate in the April-June quarter.


Bloomberg

The president of the Cleveland Federal Reserve bank on Tuesday said Congress has to allocate more funds to make sure the economy can recover and avoid “dire scenarios” that could develop as the coronavirus pandemic continues.

“I think that we need more direct fiscal policy and support to try to try to limit the possibilities of those very dire scenarios,” Mester said during a conference call with reporters.

In an earlier talk to the CFA Society of Chicago, Mester said she thought “a reasonable baseline” for the economy was a return to economy growth in the second half of the year.

But it wasn’t hard to imagine worse outcomes, “especially if an upsurge in virus cases necessitates shutting down activity again or if there is considerably more harm in terms of business and personal bankruptcies or if instabilities in the banking system arise,” Mester said.

“Some of the more pessimistic outcomes are almost as likely as the reasonable baseline I just described,” she added.

Mester refused to get drawn into a discussion of the merits of the House’s $3 trillion coronavirus relief package unveiled by Democrats earlier Tuesday.

Read: House Democrats eye Friday vote on coronavirus measure

She said the costs of the pandemic grow as it lingers, damaging more people and companies.

“It is a much bigger need that we probably all thought in the beginning. But that is the nature of this, because it is the virus dictating the timing,” she said.

Mester said companies in her district said at the beginning to the pandemic they had every intention of keeping their workers on their payrolls.

But companies underestimated the duration of the crisis. “And so you see, week-by-week is, sort of the attitudes of the businesses, especially the ones hardest hit, have gone down week-by-week,” Mester said.

U.S. equity benchmarks finished lower on Tuesday on concern about the outlook for reopening the economy. The S&P 500 index
SPX,
-1.01%

closed down 60 points, or 2% to 2,870.

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