MNI POLICY: Mester Says 'Fragile' US Recovery Needs Fiscal Aid

The U.S. economic recovery remains "fragile" amid coronavirus and early signs of a rebound are giving way to a renewed slowdown, Cleveland Fed President Loretta Mester said Wednesday.

"The recovery in activity appears to be a fragile one," Mester told a conference sponsored by the National Association for Business Economics. Business contacts are increasingly worried about the length of the crisis as a key factor in their decisions to curtail spending and cut back on hiring.

"In our latest survey, over half of the firms told us that in light of the increase in virus cases since late June, they have made meaningful changes to their plans, including for hiring and capital spending."

Mester does not expect the economy or the job market, which has seen unemployment soar into the double digits, to recover fully any time soon after losing six years of gains.

Well Below Goal

"By the end of this year, I expect that output will still be somewhat below its level at the end of last year, that the unemployment rate will remain in the high single digits, and that inflation will be well below our longer-run 2% goal," Mester said.

Mester called on Congress to do more to support a recovery that she said the Fed was already doing all it could to strengthen. "It seems clear that further fiscal support is needed to provide a bridge for households, small businesses, and state and local municipalities that have borne the brunt of the pandemic until the recovery is sustainably in place," she added.

"I expect inflation to remain below our longer-run 2 percent goal for some time to come," she said.

"The FOMC has indicated that we expect to maintain the fed funds rate target range at 0 to 1/4 percent until we are confident that the economy has weathered recent events and is on track to achieve our maximum employment and price stability goals. Our asset purchases continue to support market functioning and accommodative financial conditions."