6 takeaways from Boston Fed President Eric Rosengren’s Jan. 12, 2021 remarks
January 12, 2021
- Takeaway: We enter 2021 with some optimism about the economy. Two effective vaccines for COVID-19 are already being distributed, and we should see broader economic recovery in the medium term.
Excerpt: “…as the new year dawns, it seems likely that the public health crisis that has inflicted so much damage – on individuals, families, businesses, and the economy generally – will dissipate over the course of this year.”
- Takeaway: The economic outlook remains intertwined with that of virus, and the path to stabilizing the economy hinges on first getting COVID under control.
Excerpt: “…recent indicators suggest near-term problems stemming from elevated infections and persistent public health concerns. So clearly, the near-term recovery is highly dependent on rapid, widespread vaccination. Unfortunately, to date, the inoculation rate has been disappointing.”
- Takeaway: There are several reasons for optimism about the medium-term outlook, including favorable financial conditions, rising asset prices, and a resilient housing market. Meanwhile, household savings remain elevated.
Excerpt: “…for those whose incomes were not interrupted (for example, those whose jobs were conducive to working from home, and whose industries were not stalled by the pandemic) there is significant capacity to make expenditures once the pandemic is over. Because consumption is such a large part of the economy, in the second half of the year if vaccinations are widespread, we are likely to see a significant pick up in consumption.”
- Takeaway: Despite these optimistic signs, the pandemic is likely to continue to be a problem for public health and the economy in the first half of 2021, until widespread vaccinations take hold. Policymakers must be mindful of the deep pain still occurring in many segments of the economy.
Excerpt: “…many of the economic problems caused by the pandemic have actually been deferred, to date – for example, problems in commercial real estate and the bank loans tied to such property are likely to only be fully revealed later this year. … Importantly, the disparate economic outcomes we have seen during the pandemic have further highlighted the problems of income inequality that remain a significant challenge.”
- Takeaway: The economy’s resilience can be credited in part to significant fiscal support, and monetary policy actions that reduced interest rates to their lower limit. Support also came from the variety of Fed emergency lending facilities, including the Main Street Lending Program, which was operated from the Boston Fed.
Excerpt: “Policymakers must continue to find ways to support those…disproportionately and severely impacted by the pandemic. … My personal preference would have been to continue the (Main Street) program through the first half of 2021. The program filled a hole often left unaddressed – support for medium-sized businesses. … The program extended more than $16.5 billion in lending to over 1,800 companies. … The program settled just under 650 loans in the months from July to November, then over 1,150 loans in December alone … with settled loans across 49 states and two U.S. territories. Looking at the industries utilizing the program’s loans suggests some unsurprising areas of need, given the pandemic’s toll on certain industries where social distancing is challenging.”
- Takeaway: Despite the challenges, the Main Street program provided helpful financing and showed the feasibility of marshalling lenders and the public sector to assist hard-to-reach businesses that can survive with the support of a bridge to better times. But, were certain tweaks permitted, the program could have been more impactful.
Excerpt: “First, with less focus on mitigation of potential loss to the Treasury, much more credit would have been made available. Second, designing the program to have less legal and operational complexity, and structuring the banks’ role differently – for example, as an opportunity to earn fees as long as the loan performed, rather than a 5 percent participation – may have increased the attractiveness of the program for banks. Finally, longer terms and greater ability to refinance would have provided support to medium-sized businesses more akin to what was available to larger companies...