Big Economic Challenges Await Biden and Fed This Fall

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WASHINGTON — The U.S. economy is heading into an increasingly uncertain autumn as the rise in the Delta variant of the coronavirus coincides with the end of extended unemployment benefits for millions of people, complicating what should have been a return to normalcy as a wave of workers. re-entered the labor market.

This dynamic creates an unexpected challenge for the Biden administration and the Federal Reserve in managing the past. pretty fast recovery from a recession. For months, White House and central bank officials have pointed to the decline as a potential turning point for an economy struggling to fully shake off the effects of the pandemic – particularly in the job market, which has fallen below prepandemic levels.

The widespread availability of Covid-19 vaccines, the reopening of schools and the expiration of increased unemployment benefits are seen as a potent cocktail that will drive workers off the field and into the streets. millions of jobs employers say they are having trouble filling out.

However, this optimistic outlook may be jeopardized by the resurgent virus and policy makers’ reaction to it. Big companies already postponing back-to-office plansAn early and visible sign that life may not return to normal as quickly as expected. At the same time, long-standing federal subsidies for people affected by the epidemic, including a moratorium on evictions ending Saturday and an extra $300 a week for unemployed workers, are disappearing. This benefit expires on September 6, and some states have taken action to end it earlier.

Federal lawmakers also plan to reuse more than $200 billion in Covid aid to help pay for a $1 trillion infrastructure plan. An infrastructure bill passed by the Senate would repeal previously allocated virus funds for colleges and universities, as well as unused unemployment benefits and airline assistance. It will also withdraw unspent funds from some expiring small business programs to help offset the plan’s $550 billion in new spending. Democratic leaders was determined The Senate will vote on infrastructure legislation before it leaves Washington for a scheduled August break.

White House economists said they did not yet see the need to consider major new measures to support the recovery. After months of blockbuster economic growth, falling unemployment numbers, and complaints from business leaders and Republicans that government support is preventing workers from finding jobs, administration officials are locked into their current policy stance despite renewed risks.

Administration officials said President Biden did not force him to extend the extra $300 a week for unemployed people. It is unclear whether management will seek to expand a program that typically extends unemployment benefits to workers who are not eligible for them, including self-employed, temporary workers and part-time workers.

Officials say the $1.9 trillion economic aid package Mr. Biden signed in March, which has caused forecasters to raise their growth forecasts for this year, provides enough cushion for the economy to withstand another spike from the virus. Mr Biden also promised that the virus would not lead to new “lockdowns, closures, school closures and blackouts” like last year.

“We won’t be going back to this” he said last week.

White House advisers say the most important thing the president can do for the economy is to continue to get more people vaccinated. On Thursday, Mr. Biden asked states to pay $100 to each newly vaccinated person in money from the March stimulus package, and said the government would reimburse employers who let workers get vaccinated or allow others to get vaccinated.

“From the very beginning, we were of the view that addressing the pandemic and saving the economy were inextricably linked. “This remains true,” Brian Deese, who chairs Mr. Biden’s National Economic Council, said in an interview. But because of the progress we’ve made in addressing the pandemic and implementing both historic and durable economic policy supports, we now have a range of tools to address both of these challenges.”

The Fed is optimistic but follows a wait-and-see approach. Central bankers voted at the July meeting to drop emergency support for now. They did not give an exact date for when they would start reducing their aid to the economy. make a plan for feedback support.

Like their White House colleagues, Fed officials are counting on solid economic data this fall. Fed chairman Jerome H. Powell said last week that he expects strong labor market progress in the coming months, in part due to virus fears and reduced childcare issues.

“There are also very generous unemployment benefits, and that’s coming in right now. They’re going to be shut down completely in a few months,” Powell said at the Fed’s press conference after the July meeting. “All of these factors should subside and so we should see strong job creation move forward.”

Mr Biden told a CNN forum in Ohio on July 21 that he still saw no evidence that the added benefits had a “serious effect” on hiring. But even if they did, they’d soon be running their course, he said.

“We’re putting an end to all these things that keep people from going back to work,” he said.

This stance carries some risk. While the economy grew faster in the first half of this year than in decades, the job market is still lacking 6.8 million positions It’s unclear how quickly these things will come back, as of February 2020 and while policymakers are optimistic. The economy has never opened from a pandemic before, and no one knows to what extent unemployment insurance has deterred workers.

“If the epidemic had not existed at all, seven to nine million Americans would be working right now, so we have a lot of Americans to get back to work,” Neel Kashkari, chairman of the Federal Reserve Bank of Minneapolis, told CBS. Face the Nation on Sunday”. “But six months or two years? I am not sure.”

If workers take more time to get back to work, it could lead to a much slower economic recovery than the Fed or the White House expected. Workers on the sidelines without enhanced benefits could cut back on spending, slash demand and slow the rapid recovery that has been going on in recent months.

So far, management economists are getting encouraged by economic data. Officials said last week that they have yet to see any evidence that the Delta variant is harming economic activity, and that they are hopeful that the more than 160 million Americans vaccinated will not cut back on spending even as the variant continues to spread. The virus does less damage economically than past viruses.

And while government spending support for the economy is slowing, the Fed still keeps borrowing cheap, which should continue to support economic growth.

Fed officials said they would like to see more evidence of a labor market recovery before slowing their monthly bond purchases, which would be their first step towards a more normal policy environment.

“We are a bit far from making significant progress towards the maximum employment target,” Mr. Powell said at a press conference last week.

“I would love to see some strong business numbers,” he added.

In the text a talk on fridayLael Brainard, an influential Fed governor, said he’d like to see economic data for September to assess whether the labor market is strong enough for the Fed to start turning back support. autumn. But his colleague, Christopher J. Waller, said in an interview with CNBC on Monday that he would prefer to start pulling back on his bond purchases quickly, perhaps in October, if business data improves.

Increases in interest rates – the Fed’s more traditional and more powerful tool – remain farther away. In June, most Fed officials predicted that they would not raise federal funds rates until 2023 at the earliest because they wanted the labor market to return to full strength first.

How fast the economy can achieve this goal is an open question. Employers regularly complain about the increased benefits, but even they have sent mixed messages about whether it is the main driving force keeping labor away.

“Many were optimistic that labor availability would increase in the fall as schools resume and rising unemployment benefits end,” the Atlanta Fed said. qualitative report In business conditions found in June. “However, there were a few who did not expect the labor supply to improve for six to nine months.”

Peter Ganong, an economist at the University of Chicago, he and his fellow researchers If he had seen it in retained employment data, he would not have expected a wave of workers to return to work just because additional benefits have expired.

“So far, we’re seeing small employment differences even when vaccines are available,” he said. Mr. Ganong and his co-authors compared the employment rates of people whose wages were changed in full with additional benefits and those whose wages were changed less fully. they found small and relatively stable differencesThe economy has even reopened.

However, Mr. Ganong cautioned that his research follows supplemental insurance. For many workers, unemployment benefits may end completely once the extensions, which can have a greater impact, expire.

The labor market has a lot of room to move forward. People in prime working years join the labor market By working or looking for work at much lower rates than before the pandemic – and this metric has made little progress in recent months.

“Generally speaking, Americans want to work and will find a way to get the jobs they want,” Powell said last week. “Still, it might take some time.”

Alan Rappeport contributing reporting.



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