NY Fed Chair: Lack Of Federal Aid ‘Going To Slow The Economy’

By John Hilton

While striking a hopeful note about the prospects for a speedy economic rebound, New York Fed President John Williams said 2021 might start out rough.

Due to deadlines set by Congress, about 12 million Americans will lose unemployment benefits by the year's end, according to a report released Wednesday. Unemployment researchers Andrew Stettner and Elizabeth Pancotti concluded that more than half of the 21.1 million people currently on the benefits will lose benefits the day after Christmas due to deadlines Congress chose when it passed the Cares Act in March.

To the extent that the economy has recovered to date from the March shutdown, Williams said government aid played "a critical part." In addition to unemployment benefits, Congress passed small-business funding and $1,200 stimulus checks for all Americans.

But deliberations over a second pandemic stimulus package have gone on for months with no potential for agreement in sight. While disavowing any political opinions, Williams said the lack of government aid will have an impact.

"When that money runs out, and some of these programs expire, I think that cuts off some of the support that small businesses and households were getting," Williams said. "That's going to slow the economy over coming months. I think that is one of the factors that could slow the pace of recovery.

"I think is going to be important thing for Congress and to work on to provide, basically a bridge, to get families and small businesses through the next several months."

'What Can The Fed Do?'

The Federal Reserve Bank of New York is one of 12 Fed banks around the country. The New York Fed and its president are considered first among equals and is by far the largest (by assets), most active (by volume) and most influential of the regional Fed banks.

Williams spoke during a session hosted by the Society of American Business Editors and Writers. A Newsday reporter asked Williams what can be done to assist the hundreds of thousands of small businesses that are in danger of closing permanently.

"Obviously, there's a enormous amount of hardship," Williams said. "But a little bit of good news here is we are still seeing in the data signs of a lot of creation of new small businesses. This is a very dynamic economy. This is an economy where entrepreneurship is one of the key drivers of small business creation in the economy."

Session host Kai Ryssdal of Marketplace pushed back, noting the widespread small business closures. According to Yelp.com's Local Economic Impact Report, more than 97,966 businesses have permanently shut down during the pandemic.

"What can the Fed do to help companies with 100, 150 employees?" Ryssdal asked. "Those small businesses that, as we both know, drive a lot of the employment in this country."

Low interest rates for one thing, Williams said. However, many small businesses are very unfamiliar with the Fed's lending programs, he conceded, primarily administered through its Main Street Lending Program.

"For small businesses that don't have regular, ongoing relationships with financial institutions, like banks, these programs were harder to get to those people and haven't been as effective as hoped," Williams said.

Will Life Be The Same?

Heather Long of The Washington Post referenced a prediction from Bill Gates that 50% of business travel and 30% of office time will disappear due to the pandemic. Discussion focused on whether life will ever return to pre-pandemic norms and, if not, what it will mean for the economy.

Working from home is probably here to stay across business life, Williams said, with "flexibility" being the key value proposition. Business travel will certainly decline as executives realize a good portion of it is unnecessary, he added.

"But the personal travel side, I think people love to do that," Williams said. "Getting together with family, friends is just as important. Today I think it feels more important than ever since we're missing that. So I think there will be these changes, but we'll adapt to that. We're an economy that can adapt and evolve to those kinds of changes."

Psychologically, the pandemic could leave long-term scars on Americans, Williams acknowledged. The Great Depression left many families living frugally for the rest of their lives, he noted. Quick development of a vaccine could help ease any lingering concerns about public gatherings and a return of social lives, he added.

'If we actually get this right in terms of policy and we're able to get the economy back and at full strength within a few years, and we're able to limit the scarring in the longer term damage to the economy," Williams said, "then maybe we can also limit some of those longer-term effects on people's psychology and confidence."

InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at john.hilton@innfeedback.com. Follow him on Twitter @INNJohnH.