Lael Brainard, a member of the Federal Reserve board of governors, called for Congress and the White House to provide more fiscal support to cushion the impact of the COVID-19 pandemic and aid economic recovery.
Her remarks echoed those of Fed chair Jerome Powell even as the stalemate between House Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin indicated no agreement will likely be found before the Nov. 3 election in the US.
Brainard said disparities in the impact from the pandemic risk holding back recovery.
“Further targeted fiscal support will be needed alongside accommodative monetary policy to turn this K-shaped recovery into a broad-based and inclusive recovery,” she said, using the descriptive for the recovery favored by Democrats to indicate that some sectors of the economy are recovering, while others, notably services, are still hard hit.
Brainard is the only Fed governor affiliated with Democrats. A former under secretary of Treasury in the Obama administration, she is considered one of the top candidates to become Treasury secretary if Joe Biden wins the election for president. Brainard was appointed to the Fed in 2014.
“The recovery remains highly uncertain and highly uneven—with certain sectors and groups experiencing substantial hardship,” Brainard reported in her webcast remarks to the Society of Professional Economists Wednesday.
In a downbeat assessment about the uncertainty of the recovery, Brainard also stated that the Fed must maintain its accommodative monetary policy, crediting it with the rebound in interest-sensitive sectors like autos and real estate.
Atlanta Fed chief Raphael Bostic brought a sharper focus to the question of disparities as the first African American president of a Federal Reserve Bank emphasized the need for the Fed to address racial inequalities in the impact of the pandemic.
Those sectors such as food and hospitality that are hurt the most employ those at the lower end of the wage scale so that it disproportionally affects minority workers. Bostic said the Fed’s new flexible approach to inflation, which means it won’t preemptively raise rates to head off anticipated inflation, should help.
“A significant cost of tightening monetary policy prematurely during an economic expansion is that it can block job opportunities from reaching all communities.”
Bostic explained to the Securities Industry and Financial Markets Association.
“Our new approach should help minorities, women, and lower-income earners to be more fully connected to the labor market.”
Bostic’s name is also being bandied about as a possible Treasury secretary or Fed chair in coming years, but he routinely deflects questions about that kind of future.
The Fed’s Beige Book, a summary of anecdotal economic reports from the 12 regional banks based on their contacts with local businesses, affirmed Brainard’s description of a rebound in automobile sales, benefiting both carmakers and dealers.
Various regional banks reported “robust” increases in employment and consumer spending as well as in sales of single-family homes. In fact, low inventories and decreased availability of labor is resulting in shortages in some sectors.
Predictably, spending in “high-contact services” like accommodation and food services remained weak. Demand for rental properties declined, especially in urban centers like New York, and the commercial property sector was described as weak.
On a more technical front, Lorie Logan, executive vice president of the New York Fed who manages the trading desk executing Fed policy, cautioned that the massive Fed intervention in the market for US Treasuries in March and April at the onset of the COVID-19 pandemic showed the need for measures to keep that market more resilient.
“This was truly an exceptional event,” she said via video to the Brookings-Chicago Task Force on Financial Stability. Adding:
“However, while it is tempting to dismiss it as a once-in-a-lifetime shock, it is important to take time to reflect and assess if lessons can be learned that could make the Treasury market even more resilient to future shocks.”
The Fed bought up some $1.3 trillion in Treasuries in the six weeks to end-April and said these purchases differed from previous asset purchases to stimulate the economy because they were designed to ensure the smooth functioning of this critical market.
In the meantime, purchases have slowed to $80 billion a month with an additional $40 billion in mortgage-backed securities in what officials have conceded is a more classic quantitative easing exercise. Fed chair Powell has emphasized that the central bank will remain flexible and do whatever it takes to support economic recovery.