The coronavirus continues to have a profound impact on the U.S. economy, which has rebounded faster than expected, Philadelphia Federal Reserve Bank president Patrick Harker said in a speech Tuesday.
His forecast is for U.S. employment to return to pre-pandemic levels in 2023, Harker said at a conference titled “Pandemic: Accelerating AI and Machine Learning?” hosted by the Global Interdependence Center in Philadelphia.
The good news is that the economy “has rebounded faster than many of us had projected,” he said in the online presentation.
About half of the 22 million Americans who were suddenly unemployed earlier this year are now working again, enough to nudge the unemployment rate down to 7.9% from 10.2%, which he called “still disastrously high.”
“I expect this recovery to continue, though not fast enough that, by the end of this year, GDP will have returned to where it was before the pandemic struck. In fact, there have been a few recent signs of plateauing, suggesting that a return to the baseline will take quite some time,” he said.
Harker took office in 2015, as the 11th president and chief executive officer of the Federal Reserve Bank of Philadelphia. He sits on the central bank’s Federal Open Market Committee, which formulates the nation’s monetary policy.
Because of the United States' inability to control the virus, "we’ve experienced approximately 21% of the world’s deaths, despite housing only about 4% of the world’s population. Infection rates have come down from the highs we saw in the spring and summer, but the virus is still circulating widely in large swaths of the country. And in recent days, we’ve even seen alarming spikes” in some big cities, Harker noted in his speech.
“Racial minorities, particularly Black Americans and Hispanics, have been sickened from the coronavirus at a far higher rate than other groups. They have also died at a higher rate. And in the ensuing economic contraction, they have lost their jobs at a higher rate,” Harker said.
Harker qualified his forecast, saying it is “freighted with uncertainty because, once again, of COVID-19. The scenario of continued growth that I have presented depends on a sustained decline in the rate of new infections probably a result of nearly universal mask wearing, especially indoors. We’re also assuming that a vaccine becomes widely available sometime mid- to late next year” and an additional $1 trillion in stimulus, which has yet to be passed by Congress.
And so the path of the economy “largely depends on the path of the virus," he added. “It depends in no small part, too, on the path that the federal government chooses to take.”
In questions afterward, Harker was asked why he believes another fiscal rescue package of $1 trillion is necessary.
America’s GDP “is 70% consumer spending. I’m not advocating [for $600 checks] per se, but we can’t have a cliff effect like we do now. Forbearance is running out on housing and rent and auto loans. Once that starts to run out, we’ll have a severe cliff effect. We need to give people money to transition out of a bad situation,” Harker said.
What keeps him up at night? “The one looming largest is climate change — it’s the ultimate public good.”
“If we don’t deal with that we know the economic repercussions. I’m an optimist. There are interesting innovations that would make an enormous difference. We don’t have to live in the past. That’s the frustration I have. We’re not talking enough about the future.”
Harker’s speech was similar in tone to that of Federal Reserve chairman Jerome Powell, who spoke at the annual meeting of the National Association for Business Economics on Tuesday.
“As more time passes, people with jobs in service industries — including restaurants, entertainment or travel — risk being permanently detached from the labor force,” Powell said, in remarks reported in the Washington Post.
“That is a lot of the urgency we’ve been feeling — to do what we can as quickly as we can, so we can avoid those problems,” Powell said. “It’s now, when we need to be working on that problem. Once you’re permanently laid off, it’s just more difficult. The data are really clear. It’s just more difficult to get back into the workforce.”
“Too little support would lead to a weak recovery, creating unnecessary hardship for households and businesses,” Powell said. “Over time, household insolvencies and business bankruptcies would rise, harming the productive capacity of the economy, and holding back wage growth. By contrast, the risks of overdoing it seem, for now, to be smaller. Even if policy actions ultimately prove to be greater than needed, they will not go to waste.”
Both Harker and Powell made their comments before President Donald Trump announced that he told his representatives to stop negotiations with Democrats on a federal stimulus package until after the election.