The US economy is unlikely to return to its pre-pandemic level of output until late in 2022 as intermittent localized coronavirus outbreaks will hold back growth, a senior Federal Reserve official said.
“My forecast assumes growth is held back by the response to intermittent localized outbreaks — which might be made worse by the faster-than-expected reopenings,” Chicago Federal Reserve Bank President Charles Evans said at a virtual event on Wednesday.
“In this environment, many resources will be devoted to health and safety. I assume health solutions become widely available as we move through 2022, and I allow for a return to more normal operations by late in the year,” he was quoted as saying by Xinhua news agency.
The Fed official noted that there is “massive uncertainty” over the future path of the virus and the success or failure of therapeutics and vaccines.
“Until the virus is treatable or controlled through other measures, the return of economic activity hinges on the ability of businesses to provide safe workplaces and consumer environments. How much these efforts will allow activity to recover is an open question,” Evans said, seeing the risks to the US economy as “weighted to the downside”.
“So even after three years, my projected recovery places us below where the economy would have been had the virus not occurred. Unfortunately, I think some previously expected trend growth has been permanently lost.
“Without the devotion of adequate resources, we risk a wave of bankruptcies that destroy businesses, supply chains, and human capital — all of which may have taken years to develop. Such risks could be particularly acute for the retail and leisure and hospitality sectors,” the official added.
Evans’s remarks came as COVID-19 cases were rising rapidly in many US states, several of which are seeing record highs.
Economists and public health experts have warned that a hasty reopening of the economy could trigger a second wave of infections, which could reverse the economic recovery.
“Periodic setbacks on the road to recovery seem likely as parts of the US continue to see spikes in cases,” economists at Wells Fargo Securities wrote in a report on Wednesday.
“Thus, rather than a straight line higher, the path of output from here is likely to be more uneven until a vaccine or other treatment is made widely available.”
With 2,380,452 cases and 121,969 deaths, the US continues with the world’s highest number of COVID-19 infections and fatalities.