Spiking coronavirus cases could curb economic growth well into 2021, Dallas Fed President says

• Soaring coronavirus cases in the US threaten to derail the nation's economic rebound for the next two quarters, Federal Reserve Bank of Dallas President Robert Kaplan said Tuesday.
• "If the resurgence gets bad enough where it overwhelms health care systems in various cities, they may not have a choice but to institute lockdowns," he said in a virtual conference.
• Several economic indicators suggest the pace of recovery already slowed in recent months as fiscal support expired.
• If Congress fails to pass more stimulus, the US "will see a drop-off at some point" in consumer spending, Kaplan warned.

Rising COVID-19 cases throughout the US could hinder the nation's economic recovery before it's complete, Federal Reserve Bank of Dallas President Robert Kaplan said Tuesday.

After posting record 33.1% annualized growth in the third quarter, US gross domestic product is expected to expand at a single-digit pace through the end of the year. The forecasts join a spate of other economic indicators suggesting the recovery's strength is fading while output remains well below pre-pandemic highs, even as stock markets surge on positive vaccination news.

Rising case counts will give way to "a couple of very difficult quarters," Kaplan said in a virtual conference hosted by Bloomberg.

"If the resurgence gets bad enough where it overwhelms health care systems in various cities, they may not have a choice but to institute lockdowns," he added. "That is a real downside risk and a danger."

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Even if the country can quickly stifle the virus's spread — something it hasn't yet proven itself capable of — the lack of fresh fiscal support also poses a risk to the recovery. As new case numbers continue to rise and set records across the US, Kaplan and other Fed officials emphasized the importance of Congress passing another relief package, particularly to aid unemployed Americans and struggling businesses.

Bolstered unemployment benefits and direct payments lifted spending activity and household savings earlier in the pandemic, but that boost is nearly exhausted, the Fed president said. If Congress fails to pass new stimulus, the economy "will see a drop-off at some point" in consumer spending, he added.

"It will hurt the entire economy because it will weaken consumer spending," Kaplan said. Consumer spending accounts for roughly 70% of economic activity.

Kaplan's comments come after the Federal Open Market Committee elected to keep rates close to zero and maintain the central bank's pace of asset purchases during its early November meeting. Fed Chair Jerome Powell strayed from explicitly calling for more stimulus during a follow-up press conference but continued to hint at the importance of dual fiscal and monetary support. Kaplan serves as a voting member on the committee.

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