Lael Brainard, a top Federal Reserve official, has warned that economic disparities threaten to undermine the US recovery, as she called for Congress and the White House to provide more fiscal support and for the US central bank to maintain its commitment to loose monetary policy.
“The recovery remains highly uncertain and highly uneven — with certain sectors and groups experiencing substantial hardship. These disparities risk holding back the recovery,” Ms Brainard, a Fed governor, said in remarks on Wednesday morning.
“Further targeted fiscal support will be needed alongside accommodative monetary policy to turn this K-shaped recovery into a broad-based and inclusive recovery,” she added.
Ms Brainard, a former Treasury department official in the Obama administration, is considered a possible candidate for a top economic post, including Treasury secretary, if Joe Biden, the former Democratic vice-president, wins the White House in next month’s presidential election.
Her comments come as the White House and congressional Democrats are immersed in testy negotiations on legislation that would deliver roughly $2tn in stimulus to the economy. An agreement that could pass Congress before the November 3 vote remains unlikely, however.
Senate Republicans, who have a majority in the upper chamber, have balked at the price tag, raising doubts that a deal could even be passed in the upper chamber.
Fed officials, including Jay Powell, the central bank’s chair, have repeatedly called for an agreement to be reached in recent months, but Ms Brainard’s comments were among the most detailed in stressing the danger of widening disparities in the world’s largest economy.
While US equity markets have rebounded strongly from the initial pandemic shock, millions of Americans have not regained their jobs.
In particular, Ms Brainard pointed to unemployed workers, small businesses, and state and local governments as the parts of the economy still requiring fiscal assistance.
“Continued targeted support to replace lost incomes will be an important factor in determining the strength of the recovery,” she said to the Society of Professional Economists in webcast remarks. “Apart from the course of the virus itself, the most significant downside risk to my outlook would be the failure of additional fiscal support to materialise.”
Ms Brainard also said the Fed was “committed to providing sustained accommodation to achieve a broad-based recovery”. The central bank recently unveiled new monetary policy guidance that promised to keep rates close to zero until the economy achieved full employment, inflation reached 2 per cent and was on track to exceed that target for some time.
But Ms Brainard said that it would be important for the Fed to remain dovish even after any “lift-off” on interest rates.
“There likely will be a period after lift-off when the policy rate remains below neutral to support the inflation make-up strategy and maximum employment,” she said. “Research indicates that an important precondition for forward guidance to be effective is that the public understands and believes the policymakers’ commitment to making it happen.”
“It will be important for the Committee to communicate clearly about our intentions and stay the course resolutely,” she added.