Fed chief warns vaccine not immediate cure to economic risks with Covid-19 resurgence

WASHINGTON (BLOOMBERG) – Three of the world’s top central bankers warned on Thursday (Nov 12) that the prospect of a Covid-19 vaccine isn’t enough to put an end to the economic challenges created by the pandemic.

“We do see the economy continuing on a solid path of recovery, but the main risk we see to that is clearly the further spread of the disease here in the United States,” Federal Reserve Chair Jerome Powell said during a panel discussion at a virtual conference hosted by the European Central Bank. “With the virus now spreading, the next few months could be challenging.”

Mr Powell was joined on the panel by Bank of England Governor Andrew Bailey and ECB President Christine Lagarde. Both echoed his caution, and added to recent warnings from other central bankers against complacency.

Mr Bailey called recent vaccine news “encouraging” and said he hoped it would reduce uncertainty but added “we’re not there yet.” Ms Lagarde said while it’s now becoming possible to see past the pandemic, “I don’t want to be exuberant.”

The words of warning come as much of the US and Europe is enveloped in a new wave of coronavirus outbreaks. In the US, hospitalizations are at record highs. In Europe and the UK, governments have moved to reimpose lockdowns to limit the spread of the virus. Worldwide, cases top 52.3 million and deaths exceed 1.28 million.

Fed officials next meet Dec 15-16 and may tweak their bond-buying programme in a bid to offer the economy further support, a possibility Mr Powell alluded to following their policy meeting last week. The BOE upped the size of its own bond-buying program last week and the ECB has already flagged that it’s also getting ready to add to monetary accommodation in the euro zone next month.

Fiscal support

US lawmakers are still debating additional fiscal stimulus following Democratic President-elect Joe Biden’s victory in last week’s elections and a stronger-than-expected showing by Senate Republicans, which may lead them to retain control of that chamber pending the outcome of two January run-off elections in the state of Georgia.

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“My sense is that we will need to do more, and Congress may need to do more as well on fiscal policy,” Mr Powell said.

The central bank chiefs also suggested longer-term trends impacting the workforce have likely been accelerated by the pandemic, with uncertain effects.

“Even after the unemployment rate goes down and there is a vaccine, there is going to be, probably, a substantial group of workers who are going to need support as they find their way in the post-pandemic economy, because it is going to be different in some fundamental ways,” Mr Powell said.

Ms Lagarde sounded a slightly more optimistic note, citing the rise of telemedicine and digital payments as positive features of a more technology-reliant world.

“There will be transformation that will be beneficial. There will be sectors of services that were not available that can be now provided from anywhere to somewhere,” Ms Lagarde said. “It will accelerate digitalization, which is an area where Europe was a little bit lagging behind, and where clearly much progress had to be made.”

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