The pandemic's 2nd phase could have a worse psychological impact, Nobel Prize-winning economist Robert Shiller warns

• Nobel Prize-winning economist Robert Shiller says a second wave of COVID-19 could cause more damage to the national psyche than the first outbreak.
• "It might have a worse psychological response the second time," he told CNBC's "Trading Nation" on Tuesday.
• The US reported a record 60,000 new cases of COVID-19 on Wednesday.
• Shiller also warned the US economy could suffer once the Federal Reserve reduces its stimulus efforts.

Investors have been debating whether the US economy is better prepared to ride out a resurgence in COVID-19 cases than it was when the pandemic first broke out.

Nobel Prize-winning economist Robert Shiller argued a second peak in infections could have a more negative impact on the American psyche than the first bout, especially if the virus prevents states from reopening.

In an interview with CNBC's "Trading Nation" on Tuesday , the Yale University professor said: "Looks like we might be entering a second phase. There might have to be closures again."

"It might have a worse psychological response the second time," he added.

Shiller's comments come as COVID-19 cases have taken off across several US states including Atlanta, Florida, and Texas. A record 60,000 new cases were reported nationwide on Wednesday.

The economist suggested another wave of cases could make people more cautious and less concerned about matching their neighbours' lifestyles.

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"We don't have to keep up with the Joneses anymore," he said.

Shiller added: "That might create a different kind of culture that would last for years that you don't have to show the latest fashions and drive a spanking new car. We just learn that you can relax. But that is bad for the economy."

In the same interview, he cautioned against automatically assuming a booming stock market will translate into an economic recovery, as aggressive stimulus measures by the US Treasury and Federal Reserve in response to the pandemic have boosted share prices.

The Fed's measures include $2.3 trillion in lending to support households, employers, financial markets, and state and local governments, as well as reducing interest rates to almost zero.

The central bank also bought $428 million worth of bonds issued by individual companies, including household names like Coca-Cola, AT&T, and Berkshire Hathaway.

Its efforts have helped to drive the S&P 500 up over 40% from its March 23 low, leading many to speculate whether the US is on course for a V-shaped recovery.

Shiller said about the federal support: "People could easily think that it's not essential to the economy, and it will soon be over. But I think there's more at work to it than that."

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The economist's comments echo similar recent ones from billionaire investor Howard Marks, who said he feared for stocks once the Fed stops "levitating" the markets.

"One thing that's quite striking is the lack of interest in the whole thing until suddenly after the market peaked in February," Shiller said.

He added: "For a while it looked like people were suddenly scared, and then it came right back up. I think that has something to do with how stories evolve, and the initial story was a Great Depression again."