The U.S economy is on a long road to recovery, and it will take some time for unemployment levels to drop significantly to pre-corona levels. Those are sentiments shared by Philadelphia Federal Reserve President Patrick Harker. The remarks come at a time when the U.S economy is facing its biggest contraction, with more than 20 million people rendered jobless owing to the pandemic.
While there have been some signs of recovery in recent months, most of it has gone sideways, with the economy struggling to bounce back to pre-corona levels. Harker believes it will be difficult for the more than 20 million people to get back to employment given the current economic climate. For instance, it took two years for the unemployment rate to shrink from 5% to 4% and another one and a half years to shrink from 4% to 3.5%.
Consumer spending, as well as retail revenues, is believed to have contracted significantly in July and August as the federal government $600 a week program came to an end. With no signs of Democrats and Republicans reaching an agreement on a new stimulus plan, the U.S economy is likely to remain under pressure in the third quarter.
Cleveland FED President Loretta Mester, on her part, believes a recovery from the COVID-19 pandemic will be a slow one. Likewise, more economic support from the government, as well as the central bank, is highly needed to avert the rate of contraction.
The sentiments come at a time when the U.S central bank appears to have made a major policy shift. The FED has since confirmed it is willing to allow inflation to run higher above the 2% threshold level if it helps support recovery in the labor market and the broader economy.
In recent years, inflation level has undershot below the 2% level. The policymakers believe now is the best time for inflation to tick higher is it to highs of 2.5% or 3%.