When the Federal Reserve’s Open Market Committee decided to keep benchmark short-term interest rates at near zero percent through 2022, it did so because it could take “some time” for payrolls to normalize for the 20 million workers displaced by the coronavirus. But now, a steady rise in the rate of infections could mean an even longer recovery period.
At a June 10 press conference after the FOMC meeting, Federal Reserve Chairman Jerome Powell said the “pace of recovery remains extraordinarily uncertain.” At the time, many states were just starting their reopening process. Since then, minutes from the FOMC meeting have been released, reflecting Fed officials’ concern about additional waves of coronavirus infections and how the new spikes could inflate unemployment figures.
Dr. Anthony Fauci, the federal government’s top infectious disease expert, testified this week before the Senate that COVID-19 cases could rise to 100,000 a day if the outbreaks aren’t contained. So far, the U.S. has hit a record number of new cases at over 48,000 on Tuesday, with eight states announcing single-day highs, including Alaska, Arizona, California, Georgia, Idaho, Oklahoma, South Carolina and Texas. According to a New York Times database, the number of new cases in the U.S. rose by 80 percent in the past two weeks.
States in the South and West—particularly the ones that reopened first—have had to put the brakes on their reopening plans. States such as Arkansas, Nevada, North Carolina and Tennessee have paused plans to open the next wave of businesses, while Arizona, California, Florida, Texas and Michigan have shut down bars, gyms and theaters.
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Heading into the July 4th holiday weekend, counties in Florida and California earlier this week went a step further and closed beaches to curtail rising infections. And on Thursday, Texas Governor Greg Abbott signed an order mandating that residents wear a face-covering when out and about. “Wearing a face covering in public is proven to be one of the most effective ways we have to slow the spread of COVID-19,” Abbott said in a statement. “We have the ability to keep businesses open and move our economy forward so that Texans can continue to earn a paycheck, but it requires each of us to do our part to protect one another–and that means wearing a face covering in public spaces.”
Even in New York, the nation’s original epicenter, there was a bit of a pullback on reopening plans. New York State Governor Andrew Cuomo earlier this week mandated that all malls put in place special coronavirus-blocking air filters in their air conditioning systems before they are allowed to reopen. And shortly thereafter, he also indefinitely postponed the plan to allow restaurants to open for indoor dining—which was expected to begin Monday—and is now continuing to limit eateries to outdoor dining only. Cuomo cited rising infections in other states as a factor in delaying Phase Three.
All those developments have raised concerns that the current recession could be far deeper than initially projected.
“No one has a crystal ball. And just as it can take months to be certain a recession has begun, it can take time to declare when one is over,” Jack Kleinhenz, National Retail Federation’s chief economist, said in the July Issue of NRF’s Monthly Economic Review. He noted that while it can take months for the National Bureau of Economic Research to determine that the U.S. is in a recession, it can take the same amount of time to conclude that one is over because of the need to monitor trends in economic activity over several months.
There has been some good news on the consumer front, however. The Conference Board’s Consumer Confidence Index rose in June to 98.1 from 85.9 in May and retailers such as Macy’s has said stores that have reopened are seeing seen week-to-week sequential gains. But it still may be too early to bank on these developments.
“Before we prematurely celebrate the return of the consumer, the wave of new coronavirus outbreaks spreading throughout the country are a major threat to the recovery,” Kleinhenz said. “These outbreaks are alarming, and if they accelerate will certainly sway consumer and business confidence, taking a toll on output and employment and prolonging the time it takes to achieve a true economic recovery.”