US Fed warns of deep uncertainty amid resurgence in Covid-19 cases

Amid a recent resurgence in Covid-19 cases, a US Federal Reserve official has warned of “a thick fog of uncertainty,” noting that the economic recovery is likely to face headwinds.

“The recent resurgence in Covid cases is a sober reminder that the pandemic remains the key driver of the economy’s course,” Fed Governor Lael Brainard said in a speech at a virtual event hosted by the National Association for Business Economics (NABE) on Tuesday.

Many US states have either paused or partially reversed their staged reopening of the economy after reporting record increases in coronavirus infections and hospitalisations in recent weeks.

Brainard said, “A thick fog of uncertainty still surrounds us, and downside risks predominate,” reports Xinhua. He also said the recovery is likely to face headwinds even if the downside risks do not materialize, and a second wave would magnify that challenge.

“The recovery is likely to face headwinds even if the downside risks do not materialise, and a second wave would magnify that challenge,” she added.

Although 7.5 million jobs were added in the past two months, the remaining 14.7 million job losses have not been restored since the crisis started, the official said.

“The healing in the labor market is likely to take some time,” she said.

With some of the fiscal support measures either provided as one-off payments or slated to come to an end in July, Brainard said the strength of the recovery will depend importantly on the timing, magnitude, and distribution of additional fiscal support.

Looking ahead, the Fed official said it may shift the focus of monetary policy from stabilization to accommodation by supporting a full recovery in employment and a sustained return of inflation to its 2 per cent objective.