MNI POLICY: Fed's Bostic: Solvency Issues Loom For Businesses

By Evan Ryser

     WASHINGTON (MNI) - In just weeks many U.S. businesses could face an

existential solvency test beyond a cash crunch, Atlanta Federal Reserve

President Raphael Bostic warned Wednesday.

     Businesses in the Atlanta Fed region have indicated that May could prove a

watershed month for their viability, Bostic told the Birmingham Rotary and

Kiwanis Club.

     "What we are hearing and seeing is that credit challenges are becoming more

widespread and more acute," he said. "As that happens, solvency becomes more

into play.

     The Fed will continue to probe to see if additional actions are needed, the

Atlanta Fed leader said, adding that he expects Congress to expand the Small

Business Administration's Paycheck Protection Program as its USD349 billion

nears exhaustion. 

     The Fed has learned from the 2008 financial crisis to act powerfully and

early, but while there have been improvements in credit market since emergency

lending facilities were announced, spreads are "still elevated from normal

times," he said. 

     --SEES 3Q REBOUND 

     Bostic maintained that the economy could start to see a rebound in the

third quarter and that the Fed is "going to try to pull back and return to our

more normal stance as much as possible," though much uncertainty clouds that

outlook.  

     Bostic said he has seen a dramatic slowdown in the economy "across the

board" and expects April jobless numbers to be "pretty significantly higher." 

     The March unemployment rate may have actually been closer to 6% or 7%,

instead of the 4.4% reported, he said, noting the March data likely undercounted

the level of joblessness caused by the sharp decline in demand as a result of

efforts to curb the spread of COVID-19.

--MNI Washington Bureau; +1 202 371 2121; email: evan.ryser@marketnews.com

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