Fed’ Brainard warns US economy may slow, urges more support

WASHINGTON — Federal Reserve Governor Lael Brainard warned Tuesday that the U.S. economy appears to be slowing after an initial burst of recovery and called for the Fed to take aggressive steps to spur growth.

Brainard said that hiring and consumer spending bounced back more strongly than expected in May and June. But ongoing spikes in viral infections across most of the United States could lead reverse much of that progress. Brainard is an influential “dove” on the Fed’s board, which means she typically prioritizes keeping interest rates low to support jobs and worries less about inflation.

“Rolling flare-ups or a broad second wave of the virus may lead to widespread social distancing—whether mandatory or voluntary—which could weigh on the pace of the recovery and could even presage a second dip in activity,” Brainard said in prepared remarks. “Some high-frequency indicators tracked by Federal Reserve Board staff … suggest that the strong pace of improvement in May and the first half of June may not be sustained.”

Brainard’s warning comes as California’s governor has reimposed business shutdowns in that state in response to a jump in new cases of the coronavirus. Several other states, including Florida and Texas, are also reversing their efforts to reopen their economies. Confirmed case counts are rising in at least 38 states.

Brainard said Fed policy should do more to boost the economy. The Fed should refrain from lifting its benchmark short-term interest rate from its current level of nearly zero until inflation returned to the central bank’s 2% target, she said.

Christopher Rugaber, The Associated Press