The Washington PostDemocracy Dies in Darkness

Opinion The Fed is raising dire economic warnings. But they will go unheeded.

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We’re now learning that the Fed is raising profound concerns about our immediate economic future, ones that uncover a crucial aspect of our current crisis. And that’s why they will go unheeded by President Trump and possibly many other members of his party as well.

The Post reports:

Federal Reserve officials raised concerns about additional waves of coronavirus infections disrupting an economic recovery and triggering a new spike in unemployment and a worse economic downturn, according to minutes released Wednesday by the central bank about its June 9-10 meeting.
Fed Chair Jerome H. Powell has repeatedly said that the path out of this recession will depend on containing the virus and giving Americans the confidence to resume normal work and spending habits. But the notes from the two-day meeting reveal how interconnected Fed officials view a prolonged economic recession with the pandemic’s continued spread — and why Powell often asserts that lawmakers will need to do more to carry millions of Americans out of this crisis.

According to the minutes of this meeting, Fed officials looked at a scenario in which “a second wave of the coronavirus outbreak” forces “another round of strict limitations on social interactions and business operations.”

Full coverage of the coronavirus pandemic

This would result in “a decrease in real GDP” and “a jump in the unemployment rate” next year, the minutes said.

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As it happens, this meeting occurred before what we’re seeing now, which is something like that projected scenario: There are spikes in many states, and that’s forcing many of them to put reopening plans on hold.

That’s now taking an additional economic toll, as The Post piece notes:

The reversal means that many Americans — including hourly and low-wage service employees — have been kicked out of the workplace for a second time.

What this confirms, again, is that we can’t really get back to economic recovery until we tame the virus. People will be reluctant to resume economic activities. The virus’s continued circulation had all but guaranteed that too-rapid reopenings would lead to spikes, forcing reversals.

But these fundamentals will continue to go unheeded. Indeed, it’s likely that Trump — and, possibly, many other Republicans — will have just the hook to ignore this, within days.

The June jobs numbers are due out at the end of this week. And they will likely show a few million jobs gained. That’s the equivalent of a water gun squirt at an inferno, given that we’re around 20 million jobs in the hole.

But Trump will seize on it to say we’re roaring back. When we regained a few million jobs last month, Trump’s campaign rushed out a massive ad campaign proclaiming, laughably, that “the great American comeback has begun.”

That was before we saw the big coronavirus spikes of the moment. But there’s no question he’ll do something like this again. Which will make it less likely that the Fed’s fears are heeded.

And that will make it less likely that we get another big economic rescue package. Yet this is exactly the thing the Fed keeps calling for: more assistance to families and businesses. This will become particularly pressing when supplemental unemployment benefits run out at the end of July.

In a good piece, Jim Tankersley and Ben Casselman explain what the economic data show about why this is so dangerous. They predict that the jobs numbers — which, again, will likely show a few million added — will largely reflect the surprising rebound in late May and early June.

But, as they detail, other data show that there’s likely been a slowdown throughout June. And that may not be captured in the jobs number, which will “obscure that reversal.”

You can see where this is going. As it is, that June jobs number, while an improvement, is nothing even close to a recovery, given our deep hole. But Trump will hype it to the skies.

The frame that Trump and his supporters are embroidering is that the only thing restraining the economy from exploding back to greatness is local officials (mostly Democratic governors) who are keeping shutdowns in place. As Ryan Cooper notes, conservative commentators are also all in with the deception that we can engineer full recovery by “shoving people back to work and pretending as if everything is fine.”

They are burying the core problem: We can’t seriously get the economy going again until we tame the virus. That’s what Powell keeps saying. And it’s what the Fed warned of again. Indeed, this reality — and with it the likelihood of continued virus surges — is exactly why the Fed keeps saying Congress needs to step up again.

The crux of the matter is that Trump cannot concede that basic point. He isn’t willing to do what it takes to tame the novel coronavirus. His reelection timetable dictates that his best hope is to use his magical reality-warping powers to create the illusion we’re roaring back, since an actual full recovery can’t happen yet.

Trump advisers and Republicans even reportedly fear that extending supplemental unemployment will make it less likely that people will return to work (in pandemic conditions). Translation: An extension would disrupt efforts to create that illusion of rebound.

Because that illusion matters more than reality, the Fed’s warnings may go unheeded, making congressional action less likely. And if so, it will result in more misery.

Read more:

Greg Sargent: Trump is in deep trouble, new polls show. But he has one hidden advantage.

Robert J. Samuelson: The obstacle course on the road to recovery

Catherine Rampell: Trump is running on the economy without a plan to rebuild it

E.J. Dionne Jr.: Republicans are biting the Democrats’ helping hand

Jennifer Rubin: The markets finally figured out the economy is rotten