The U.S. economy could see a jolt this summer as an increasingly vaccinated population ramps up travel and spending, though prospects of another COVID-19 spike and an uneven global recovery could darken the outlook, Federal Reserve Bank of Atlanta President Raphael Bostic said Tuesday.
Mr. Bostic was largely optimistic, noting that data “suggests that we are starting to get to the other side” of the pandemic, citing leisure bookings, spending trends and the $1.9 trillion in stimulus funds now flowing into the economy.
Still, this is no time for a victory lap, he said during a World Affairs Council of Atlanta conversation with his predecessor, Dennis Lockhart, and council President Charles Shapiro.
The U.S. remains 9 million jobs short of its pre-pandemic employment, meaning that even if rosy predictions of a million-job month in July came true, it would still take well into next year for a full recovery by that metric.
“We’ve still got a ways to go on the employment front until we will be in the position to exhale and let the marketplace play out as it will,” Mr. Bostic said.
He was not worried about “runaway inflation” in the next eight to 12 months — countering concerns by some over recent government largesse disbursed to counter the effects the pandemic. But he conceded that rising prices could become a problem as the recovery gains steam. That will force vigilance on the part of the Fed, which along with driving employment is tasked with wielding the tools of monetary policy to keep inflation at bay.
The Fed, he said, is largely sticking to the guidance it announced last summer: that it will err on the side of letting the economy run a bit hotter than normal — presumably by deferring interest rate increases — if it’s clear that inflation is not becoming a major issue.
“You can think of this as lower for longer relative to where we have been in the past,” Mr. Bostic said.
While he said Fed officials get paid to be “wary,” of concerns like tackling the ballooning national debt, he said the priority for now should be quick recovery.
“Once we’re done, the more business and families that are not in distress, the more they’ll be able to contribute to our economy and enable us to have a more robust economy and recovery,” He said.
Potential Risks Foreign and Domestic
Mr. Bostic acknowledged that all this comes with a big caveat: that the ongoing U.S. vaccination campaign cuts COVID-19 infections enough to drive a return to normalcy. Case numbers have plateaued after falling for weeks, causing concern among some health experts that virus variants and increased activity could conspire to spur a fourth wave.
“We still have to be very vigilant at this point and not let our guard down as if we are through all this,” he said.
Another risk is that after a spurt of activity, momentum fizzles out as “structural changes” wrought by the pandemic start to reveal their effects. For now, it’s unclear how enduring summer demand will be, and “to what extent has (the pandemic) changed the types of goods we want to purchase, activities we want to engage in, what work is done, where work is done.”
An uneven global recovery also presents a potential headwind.
“It definitely will affect us. Our economy is heavy driven by domestic consumptions but not exclusively driven by domestic consumption,” Mr. Bostic said, adding that the 30-35 percent of the economy exposed to global shocks “will grow slower potentially if the rest of the world does not recover quite as well.”
Mr. Bostic applied to economics the same theory epidemiologists have been espousing during the pandemic: that no one will be fully protected until all are.
He added that while the move to make supply chains more resilient by bringing factories back to the U.S. could have short-term positive impacts here, it also presents a double-edged sword, particularly in the next crisis. Efficiency gains could be blunted by a reduction in the “range of possible outcomes when there are disruptions.”
Mr. Bostic, the first Black president of the Federal Reserve Bank of Atlanta, outlined its research on housing affordability other inequities, pushing back on the idea that the Fed is suffering from politically motivated “mission creep.”
“Our role is to have shared stewardship of the U.S. economy, and to do that we have our mission and our mandate, which is to manage price stability and full employment, but it’s also I think to talk about and put a spotlight on these areas that are holding us back and are keeping us from fully realizing the full potential of this economy, which then feeds back to our mission,” he said.
He added that if society doesn’t think about issues like equity in housing and investment rural broadband, “we will be stung by them.”