(Bloomberg) -- The U.S. economy could be in for a challenging few months as Covid-19 spreads -- despite recent positive news about vaccine development, Federal Reserve Chair Jerome Powell said.
“We do see the economy continuing on a solid path of recovery, but the main risk we see to that is clearly the further spread of the disease here in the United States,” Powell said Thursday during a panel discussion at a virtual conference hosted by the European Central Bank. “With the virus now spreading, the next few months could be challenging.”
Fed officials made no changes to their policy stance last week at a meeting following the U.S. election, sticking with near-zero interest rates and bond purchases of $120 billion per month.
But the prospect of a divided government raised by the election results has dimmed expectations for additional aggressive fiscal stimulus. That may lead the U.S. central bank to tweak its bond-buying program in the coming months, in a bid to offer the economy further support.
Fed officials next meet Dec. 15-16.
BOE, ECB
Bank of England Governor Andrew Bailey and European Central Bank President Christine Lagarde echoed Powell’s caution on the vaccine. Bailey said it is “encouraging” and he hopes it will reduce uncertainty, but “we’re not there yet.”
His ECB counterpart said while it’s becoming possible to see past the coronavirus, “I don’t want to be exuberant.”
In the U.S., President-elect Joe Biden’s Democrats are pushing for a more ambitious spending program than Republicans, who could retain control of the Senate if they win at least one of two January run-off elections in Georgia.
The U.S. economy has generally rebounded faster than forecasters anticipated in recent months following the collapse in employment caused by the coronavirus pandemic in March and April. The unemployment rate fell by a full percentage point to 6.9% in October, monthly jobs data published by the Labor Department on Nov. 6 showed.
But the country is experiencing another wave of coronavirus outbreaks that has already sent new cases and hospitalizations to record highs, a development which threatens to slow or reverse the progress made since April.
“My sense is that we will need to do more, and Congress may need to do more as well on fiscal policy,” Powell said.
(Updates with comment from Powell in final paragraph.)
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