With ‘Main Street’ in view, Fed weighs risks of job, productivity shocks – By Howard Schneider (OANN) / May 29 2020
WASHINGTON (Reuters) – U.S. Federal Reserve officials have talked broadly about helping households and firms through the current economic crisis and quickly unleashed trillions of dollars in cash and credit guarantees to build a “bridge” to the post-pandemic world.
But underlying that swift response is a debate over how to ensure the cure for the country’s immediate economic problems doesn’t damage future growth by keeping otherwise failing firms alive, saddling others with too much debt to thrive, or encouraging people to stay in jobs that will disappear.
It’s a longer-term dilemma, to be sure, when the priority is to prevent a wave of personal and business bankruptcies from creating an even deeper economic hole. But it is one the world’s central banks and elected leaders are struggling to get right even as they roll out unprecedented support. A misstep could damage productivity and slow the hoped-for recovery.
“It is a very tricky balance,” Richmond Fed President Thomas Barkin said in a recent interview where he sketched out the paradox U.S. officials face in lowering an unemployment rate that likely topped 20% this month: Federal programs, based on hopes of a short downturn and sharp rebound, have been geared toward returning workers to jobs they held before the novel coronavirus outbreak; but those might not be the jobs the economy demands in a slow-to-recover world with new social norms and entire industries like elder-care likely to be reimagined.
“Some of this has to start with where do you see growth” in the future, Barkin said. His thought was echoed in a recent New York Fed study on how job training programs struggled after the last recession to adapt to in-demand occupations, possibly prolonging unemployment.
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