MNI POLICY: Fed's Rosengren Warns of H2 Coronavirus Flare-Ups

--More Fiscal And Monetary Action Needed

By Evan Ryser

     WASHINGTON (MNI) - Boston Fed President Eric Rosengren said Friday he's

pessimistic about a second-half economic recovery because of weak U.S. measures

to contain Covid-19, and even without another wave seen in past pandemics

unemployment will remain in double digits all year. 

     Additional "highly stimulative" monetary action is still necessary, and

fiscal policy also needs to do more, he said in the text of a speech.

     "I expect the economic rebound in the second half of the year to be less

than was hoped for at the outset of the pandemic," Rosengren told the Greater

Providence Chamber of Commerce, pointing to the continued community spread of

Covid-19 and the acceleration of new cases in many states.

     The "more pessimistic" forecast does not fully incorporate challenges of a

second wave of the virus that is more severe than the first -- an outcome that

occurred with the 1918 Spanish Flu, the 1957-1958 Asian Flu, and the 2009-2010

H1N1 Flu.

     U.S. efforts to contain the virus have not been particularly successful,

Rosengren warned. "This lack of containment could ultimately lead to a need for

more prolonged shut-downs."

     --OPENING TOO FAST

     "I see a substantial risk in reopening too fast and relaxing social

distancing too much," he said. "And even if it turns out that the response to

the pandemic has been calibrated appropriately, the forecast from FOMC

participants highlights the need for additional highly stimulative monetary

policy, including the use of Federal Reserve emergency lending facilities."

     May's surprising job gain contained classification errors so that "the

picture is not as bright as the headline unemployment rate measure suggests," he

said, and other measures "indicate a badly disrupted labor market." 

     His unemployment projection of double digits thru 2020 is "somewhat higher"

than the 9.3% FOMC median released earlier this month, he said, adding inflation

is likely to remain "well below" the Fed's 2% objective.

     --MAIN STREET

     The Main Street Lending Program first announced March 23 is being

administered by the Boston Fed, and opened for registrations on Monday amid

questions about its unattractive terms. Rosengren is "confident that this

innovative program can help lenders across the country support the credit needs

of local businesses."

     As of Thursday, more than 200 financial institutions had initiated

registration. "Many more institutions will register for the program, given its

benefits to them, their customers, and the areas where they operate," he said.

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

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