(Reuters) – The possibility of a surge in COVID-19 infections is likely to remain a threat to the U.S. economy until a vaccine is developed, and a full recovery is still far off, Kansas City Federal Reserve Bank President Esther George said Thursday.
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The shutdowns enacted to control the virus disproportionately hit hospitality, education, health and retail, and it will take a while for the economy to recover fully, George said in remarks prepared for a virtual event organized by the Economic Club of Kansas City.
“While we saw strong job gains in these industries in May, with employment increasing by 2 million jobs, a full recovery is still far off,” she said.
The Fed’s efforts to boost market liquidity and improve market functioning through asset purchases and a slate of emergency lending facilities seem to have worked, George said. But economic activity may not fully rebound, and the possibility of a new surge of infections is likely to remain a “persistent risk” until a vaccine is developed, she cautioned.
State and local governments, in particular, are struggling to balance their budgets after the pandemic led to a sharp drop in tax revenues, she said.
Given the uncertainty over the outlook, it will be difficult for policymakers to determine the correct path for monetary policy, George said.
“Overall, it might be a while before the dust settles and we gain insight on whether further accommodation is necessary or not,” she said.