Three of the world’s top central bankers predicted that the breakthrough in a coronavirus vaccine would increase uncertainty for the global economy while calling for more public support in the short term to close the gap to recovery.
Jay Powell, chairman of the US Federal Reserve, said this week’s vaccine breakthrough was “certainly good and medium-term welcome news.” However, he cautioned that “significant challenges and uncertainties regarding timing, production, distribution and effectiveness remain”.
“In our view, it is simply too early to be certain of the impact the news will have on the economy,” Powell said at the ECB’s annual central banking forum, which is held online for the first time this year.
“The next few months could be challenging,” he added.
The global economic outlook took a big boost this week when Pfizer and BioNTech said the jointly developed vaccine had been tested 90 percent effective and could be approved for production this year.
We’re recovering, but to a different economy
Christine Lagarde, President of the ECB, said “We are seeing significantly less uncertainty on several fronts” and mentioned Joe Biden’s election as US President and “the fact that Brexit is moving forward” as positive factors along with the development of the vaccine.
However, the ECB President said one of her biggest fears was that Denmark’s plan to weed out the entire mink population to stop the spread of a mutated form of the coronavirus had shown that it could be transmitted back to humans from animals, and that a vaccine “may not work”. .
The pandemic created a “great flow of uncertainty,” said Ms. Lagarde. She said it was “vital” that both “extremely helpful” fiscal and monetary policies “move across the river and continue to support the economy so that there is as little permanent damage as possible.”
Bank of England Governor Andrew Bailey reiterated her cautious optimism about the vaccine. “It is obviously good news, it is encouraging, and we need signs of encouragement, but it is true that it is. . . not yet here in terms of implementation. “He added that the development of a vaccine is in line with BoE’s expectations for an improved health scenario over the next year.
Speaking at a previous FT Global Boardroom event, Bailey said the vaccine breakthrough had strengthened the central bank’s view that the long-term restructuring required after the pandemic will be more modest than it was in the 1980s or 1990s. The BoE assumes that British production will only recover in the first half of 2022 and return to pre-pandemic levels.
Mr Powell also stressed that the pandemic is likely to transform the economy to become more reliant on technology and automation, which would disproportionately affect poorly paid service workers.
“We’re recovering, but to a different economy,” said Powell. “There will be a significant number of workers who will need assistance in navigating the post-pandemic economy because it will be fundamentally different.”
The US labor market continues to improve despite the rising Covid-19 infection rate. The first time jobless claims in the US fell to 709,000 last week, the Department of Labor said Thursday. According to a Thomson Reuters poll, economists had expected claims of 735,000 in the week leading up to November 7th.
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The three central bankers expressed satisfaction with how the reforms after the financial crisis had made the banking sector more resilient. “We wanted a banking system that supports our economies, not economies that support the banking system, and I think we saw that,” Bailey said.
Ms Lagarde said banks “acted as intermediaries rather than causing the problems” during the 2008 crash, but warned that bad loans are likely to continue to surge once governments begin to support businesses and hiring companies urged lenders to quickly resolve problems in their loan portfolios.