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Dallas Fed President Rob Kaplan
Federal Reserve Bank of Dallas
U.S. economic growth could stall out by the end of the year if the coronavirus pandemic continues to spike across the country, Dallas Fed President Rob Kaplan said Wednesday.
“Growth has been moderating and we could get to the point, depending on how significant this [virus] resurgence gets, that growth would actually stall out — either by the end of this year or into the first quarter,” Kaplan said in an interview on CNBC.
If the economy can weather this short-term contraction, it should rebound as 2021 progresses, Kaplan said.
“The next three to six months is going to be challenging,” he said.
But “over the horizon,” very strong growth should return as the COVID-19 vaccine becomes widely available, he said. The U.S. economy could expand at a 3.5% annual rate next year, but it will come later in the year, he said.
Asked if the Fed should “step up and do more in terms of stimulus,” Kaplan suggested that another coronavirus relief measure would be a better response.
“I think when you have this situation when you’ve got a three- to six-month issue, but over the horizon you’ve got strong growth, I think dealing with that may be more suited to fiscal policy,” Kaplan said.
Earlier Wednesday, the Fed’s Beige Book found that growth has already stalled in four of the Fed’s 12 regional districts.
Some economists think the Fed might decide to boost the economy by concentrating its asset purchases on the long end of the yield curve.
The Fed is buying $120 billion per month of Treasurys and mortgage-related assets.
“I would not want to do that at this point,” Kaplan said. Interest rates remain at historically low levels and financial conditions are accommodative, he said. But Kaplan said he would go into the Fed’s next policy meeting on Dec. 15-16 with “an open mind.”
Data suggest the public goes about its business even as COVID-19 cases rise, but local governments are forced to crack down on activity when “it gets so bad” that it threatens the availability of health care, Kaplan said.
The S&P 500 SPX, +0.17% index hit another record high Wednesday as investors looked past the immediate concerns to focus on a potential post-pandemic economy.
