WASHINGTON – The U.S. economy is headed for an increasingly uncertain fall as a spike in delta coronavirus coincides with the phasing out of expanded unemployment benefits for millions of people, making it harder to return to normal as a wave of workers back into the job market occurred.
This dynamic presents the Biden administration and the Federal Reserve with an unexpected challenge in coping with a fairly quick recovery from a recession. For months, White House and Central Bank officials have been pointing to the case as a possible turning point for an economy struggling to completely shake off the effects of the pandemic – particularly in the labor market, which remains millions of jobs below pre-pandemic levels.
The widespread availability of Covid-19 vaccines, the reopening of schools and the phasing out of increased unemployment benefits have been viewed as a potent cocktail that should push workers off the sidelines and into the millions of jobs employers say are struggling to occupy them.
However, this bullish outlook could be jeopardized by the resurgence of the virus and the response of policy makers to it. Large companies are already delaying plans to return to the office, an early and visible sign that life may not return to normal as soon as expected. At the same time, long-standing federal grants to those affected by the pandemic will end, including a moratorium on evictions that ended Saturday and an additional $ 300 per week for the unemployed. This benefit expires on September 6th and some states have moved to end it earlier.
Federal lawmakers also plan to reuse more than $ 200 billion worth of Covid supplies to pay for a $ 1 trillion infrastructure plan. An infrastructure bill going through the Senate would suspend previously allocated virus funds for colleges and universities along with unused unemployment benefits and flight aid. It would also reclaim unspent funds from some expired small business programs to offset the plan’s $ 550 billion new spending. Democratic leaders have insisted that the Senate vote on the infrastructure bill before leaving Washington for a scheduled break in August.
White House economists have said they see no need to consider major new measures to support the recovery just yet. After months of blockbuster economic growth, falling unemployment, and complaints from business leaders and Republicans that government support is preventing workers from accepting jobs, administrators stick to their current political stance despite renewed risks.
Government officials said President Biden was not pushing for the additional $ 300 a week to be extended for the unemployed. It is unclear whether the government will attempt to expand a program that extends unemployment benefits to workers who are normally not eligible, including the self-employed, gig workers, and part-time workers.
Officials say the $ 1.9 trillion economic aid package signed by Mr Biden in March, which led forecasters to raise their growth estimates this year, has given the economy enough cushion to allow the virus to surge further endure. Mr Biden has also vowed that the virus will not result in new “bans, closings, school closings and disruptions” as it did last year.
“We’re not going back to that,” he said last week.
White House advisers say the most important thing the president can do for the economy is to keep working to get more people to be vaccinated. On Thursday, Mr Biden urged states to use money from the March stimulus package to pay $ 100 to each newly vaccinated person and said the government would reimburse employers who give workers time to vaccinate or others to vaccinate to take.
“From the outset, we believed that fighting the pandemic and recovering the economy are inextricably linked. That still -plies, ”said Brian Deese, chairman of Mr. Biden’s National Economic Council, in an interview. “But because of the progress we’ve made in tackling the pandemic and in establishing both historical and permanent economic policy support, we currently have a number of tools in place to address both of these challenges.”
The Fed is taking an optimistic but wait and see -proach. At their July meeting, the central bankers voted to maintain the emergency aid for the time being. They did not give an exact date on when they could reduce their aid to the economy, although they are starting to work out a plan to reduce aid.
Much like their White House counterparts, Fed officials are counting on solid economic data this fall. Fed chairman Jerome H. Powell said last week that he expects strong progress in the labor market in the coming months, in part as virus fears and childcare problems should subside.
“There was also very generous unemployment benefits that are rolling now. They will be fully rolled out in a few months, ”Powell said during a press conference following the July Fed meeting. “All of these factors should wear off, and that’s why we should see strong job creation.”
Mr Biden told a CNN forum in Ohio on July 21 that he still saw no evidence that the benefits had a “serious impact” on attitudes. But even if they did, he said, they would soon run their course.
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Aug 3, 2021, 1:46 p.m. ET
“We’re ending all of the things that keep people from going back to work,” he said.
There is some risk in this attitude. While the economy grew faster in the first half of this year than it has been in decades, the labor market is still 6.8 million jobs short from February 2020 levels, and while policymakers are optimistic, it is not clear how quickly those jobs are returning become . The economy has never reopened after a pandemic and no one knows how far unemployment insurance is putting workers off.
“Seven to nine million Americans should be working now if the pandemic had never h -pened. Face the Nation “on Sunday. “But is it six months or is it two years? I’m 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 White House anticipate. Workers stuck on the sidelines without enhanced benefits could pull back on spending, weakening demand and slowing the r -id recovery of recent months.
So far, economic data remains encouraged for administrative economists. Officials said last week that they still saw no evidence of the delta variant’s affecting economic activity and that they hoped the more than 160 million Americans who were vaccinated would not withdraw their spending even if the variant continued spread – and this wave of the virus is less economically damaging than previous ones.
And as government spending support for the economy wanes, the Fed still believes lending is che -, which should further dampen economic growth.
Fed officials said they want to see more evidence of the job market healing before slowing their monthly bond purchases, which will be their first step towards a more normal political stance.
Mr Powell said at his news conference last week that “we are far from having made significant further progress towards the maximum employment target”.
“I would like some strong job numbers,” he added.
In a speech on Friday, Lael Brainard, an influential Fed governor, said she wanted to see September economic data to assess whether the labor market is strong enough for the Fed to start calling back support, suggesting it will no signaling would prefer a start of the slowdown until later this fall. But her colleague Christopher J. Waller said in a CNBC interview on Monday that he would probably rather start pulling back bond purchases quickly if the job data holds up, maybe as early as October.
Interest rate hikes – the Fed’s more traditional and effective tool – remain further afield. Most Fed officials forecast in June that they would not raise their federal funds rate until 2023 at the earliest because they want the labor market to return to full strength first.
How quickly the economy can achieve this goal is an open question. Employers regularly complain about the improved performance, but even they have sent mixed messages about whether this is the main reason for keeping workers in check.
“Many contacts were optimistic that labor availability would improve in the fall when schools resume and the unemployment benefits increase ends,” said the Atlanta Fed’s qualitative report on business conditions in June. “However, there have been several who do not expect the labor supply to improve for six to nine months.”
Peter Ganong, an economist at the University of Chicago, said that if the pattern he and his colleagues had seen in the employment data persisted, he wouldn’t expect a wave of workers to jump back into jobs, only because the additional services have expired.
“So far we are seeing small differences in employment even as vaccines become available,” he said. Mr. Ganong and his co-authors compared the employment rates of those whose wages were more fully replaced with benefits and those whose wages were less fully replaced. They found small and relatively steady differences even as the economy reopened.
But Mr. Ganong warned that his research is tracking the supplementary insurance. For many workers, unemployment benefits could be waived altogether when the extensions expire, which may have a bigger effect.
There is plenty of room for advancement in the labor market. People in their prime are entering the job market by working or looking for jobs at much lower rates than they did before the pandemic – and that metric has made little progress in recent months.
“In general, Americans want to work and they will find their way into the jobs they want,” Powell said last week. “However, it may take some time.”
Alan R -peport contributed to the coverage.
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