Fed’s Brainard Warns Economy’s Biggest Risk is Lack of Fiscal Support

Federal Reserve Governor Lael Brainard today warned that the biggest risk to the economy, aside from the course of the coronavirus, is the failure of additional support to materialize. She said too little support would lead to a slower and weaker recovery and premature withdrawal of fiscal support would “risk allowing recessionary dynamics to become entrenched, holding back employment and spending, increasing scarring from extended unemployment spells, leading more businesses to shutter, and ultimately harming productive capacity.”

Continued targeted support to replace lost incomes will be an important factor in determining the strength of the recovery, Brainard. “The recovery will be broader based, stronger and faster if monetary policy and fiscal policy both provide continued support to the economy.”

Many hard-hit small businesses that were sustained by Paycheck Protection Program loans “are becoming increasingly strained as revenue shortfalls persist,” Brainard said. The longer the pandemic persists, state and local governments also will also find it difficult to sustain employment and employment levels without further fiscal support, she said.