Federal Reserve Governor Lael Brainard today warned of heightened uncertainty “as long as the pandemic hangs over the economy.” She pointed to spikes in reported COVID-19 cases in recent days as many state economies began to reopen, noting that recent improvements in the labor market may not be sustained if widespread shutdowns are again needed to contain the outbreaks.
While crediting the Fed’s swift actions in the early days of the pandemic to support market operations, “a broad second wave could re-ignite financial market volatility and market disruptions at a time of greater vulnerability,” Brainard said in remarks at a National Association for Business Economics virtual event today. “Nonbank financial institutions could again come under pressure, as they did in March, and some banks might pull back on lending if they face rising losses or weaker capital positions.”
Brainard added that “with a dense fog of COVID-related uncertainty shrouding the outlook, the recovery likely will face headwinds for some time, calling for a sustained commitment to accommodation, along with additional fiscal support.”