- Monetary policy is where it needs to be, and Congress needs to act quickly on new stimulus if it aims to avoid another economic slump, Federal Reserve Bank of Cleveland President Loretta Mester said Thursday.
- The lack of new fiscal aid after months of negotiations “is concerning,” she added in an interview on Bloomberg TV.
- The legislative stalemate comes as economic indicators point to a weakening recovery and COVID-19 case counts repeatedly hit fresh records.
- Monetary policy, on the other hand, “is doing the right thing in keeping things very accommodative,” Mester said, adding that further easing can’t make up for the absence of fiscal support.
- Visit Business Insider’s homepage for more stories.
Congress needs to act soon if it aims to avoid another bout of economic turmoil, Federal Reserve Bank of Cleveland President Loretta Mester said Thursday.
Fears of a double-dip recession are escalating as the US contends with its worst wave yet of COVID-19 infections. Daily case counts continue to hit new records, and several economic indicators point to a weakening pace of recovery.
While the start of the coronavirus recession was met with a historic monetary and fiscal response, the absence of new stimulus is “very concerning,” Mester said in an interview on Bloomberg TV.
“The idea that we’re asking people to make a sacrifice again, and not having that aid in place, is going to be really burdensome on the economy going forward and certainly burdensome on the families that are bearing the brunt,” she added.
Read more: ‘I still think there’s a long way to go’: A crypto CEO breaks down why he’s bullish on Bitcoin even after its surge back to $18,000 — and shares the other cryptocurrency he thinks is here to stay
President-elect Joe Biden’s victory and the likelihood of a Republican-controlled Senate cut into optimism for a front-loaded fiscal relief measure in 2021. Democrats and Republicans remain worlds apart in deciding how much money to spend on new aid, as well as what to spend it on.
Dashed hopes for a near-term bill led Wall Street to look back at the Fed for additional support. JPMorgan analysts said Monday that the central bank will likely extend the maturity of its $80-billion-per-month Treasury purchases to drag long-term rates lower. The central bank currently purchases $120 billion in Treasurys and mortgage-backed securities to aid market functioning and encourage borrowing.
Though changes may materialize at the Fed’s December meeting, Mester sees monetary policy as needing little adjustment for the time being.
“That’s what’s the tension here, is that monetary policy is doing the right thing in keeping things very accommodative, and yet, we don’t have the other side,” she said. “And it’s not an either-or. One can’t substitute for the other.”
Some areas of the economy, namely the automotive and housing markets, already recovered and exceeded pre-pandemic levels of activity. When there’s “such disparity across sectors,” fiscal policy is best suited to providing critical aid, the Fed president added.
Mester serves as a voting member of the Federal Open Market Committee. The group of Fed policymakers is set to meet on December 15 and 16, where it will all but certainly elect to keep interest rates at record lows.