US economy at risk of falling into ‘sinkhole’, warns Fed official

The US economy has lost momentum in recent weeks because of a resurgence of the coronavirus and that may call for more sustained fiscal support to cushion the blow, a senior US central banker said.

"We thought the economy faced a pothole and stimulus put a plate over it so we could navigate," Federal Reserve Bank of Richmond President Thomas Barkin told a webinar hosted by the Centre for Regional Economic Competitiveness on Tuesday (US time).

“The path of the economy still depends on the course of the virus”: Tom Barkin, president of the Federal Reserve Bank of Richmond.Credit:AP

Flattening momentum

"The resurgence in the virus in the last few weeks has clearly flattened out momentum," Barkin said.

"The path of the economy still depends on the course of the virus. It obviously hasn't been deterred by warmer weather, unfortunately."

Barkin said the outlook could be become clearer over the next few weeks depending on the virus and the amount of fiscal support. "Escalation could be a significant jolt to confidence," he said. "The path forward also depends on the evolution of stimulus. The fiscal side is unclear as you know."

Lower-paid services employees quickly spent money that was provided in the initial package, while white-collar workers increased savings, Barkin said. The aid offset some of the blow to economic growth in the past few months, he said. State and local governments would be forced to make cutbacks without additional fiscal support, he said.

Bloomberg

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