More Stimulus Is Needed To Strengthen Economy, Fed’s Brainard Says

A top Fed official is warning more stimulus spending will be needed in order to turn a “K-shaped recovery” in the United States into one that is “broad-based and inclusive.”

Federal Reserve Governor Lael Brainard on Wednesday (Oct. 21) told members of the Society of Professional Economists the biggest threat to the U.S. economy’s recovery would be the failure of additional fiscal support to materialize.

The remarks by the Fed governor, made at the online confab of economists, come as the White House and House Democrats haggle over details of a $2 trillion stimulus package.

The prospects for a final deal remain uncertain, with Senate Republicans, who have been pushing for a much-slimmed-down package in the hundreds of millions, threatening to scuttle any larger agreement over deficit concerns.

Brainard warned that “too little support would lead to a slower and weaker recovery” while “premature withdrawal of fiscal support” could have an even more devasting impact.

A cutoff of additional fiscal support for lost wages and other needs risks “allowing recessionary dynamics to become entrenched, holding back employment and spending, increasing scarring from extended unemployment spells, leading more businesses to shutter, and ultimately harming productive capacity,” Brainard said.

Despite a “strong initial bounce back,” the recovery has been highly uneven so far, with some businesses and workers getting hit much harder than others, she noted.

After an “unprecedented contraction,” in the first half of 2020, the U.S. economy appears to have regained half of the lost ground in third quarter, according to Brainard.

But small businesses have had a much more difficult time, with minority-owned small business “particularly hard hit,” she noted.

The number of Black business owners plunged 41 percent between February and April, with a 32 percent decline in Latinx business owners, compared to a 22 percent drop overall, Brainard said.

“Within the overall improvement, some groups and sectors continue to see depressed employment, income, and revenues,” Brainard said. “Sustained disparities can hold back the recovery and lead to worse overall outcomes.”