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U.S. Economic Recovery Fades as Infections Rise: Moody's Analytics

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The U.S. economic recovery is fading as infections, deaths and hospitalization due to COVID-19 increase exponentially and there’s no additional economic relief in sight, according to Moody’s Analytics Chief Economist Mark Zandi.

“With hospitals filling up again as the pandemic returns full force almost everywhere, it is difficult to see how the economy will not suffer,” writes Zandi in his latest COVID Crisis weekly update

Zandi also cites the renewed decline in restaurant sales this month, reflecting the intensifying pandemic along with colder weather that limits outdoor dining; weaker than expected monthly retail sales; rising weekly unemployment claims;  and the decline in Moody’s own back-to-normal index, which the U.S. economy’s performance during the pandemic against its pre–pandemic levels.

“The economic recovery is also at risk if policymakers are not able or willing to produce additional timely monetary and fiscal support to the economy,” writes Zandi.

One leading policymaker, Treasury Secretary Steve Mnuchin, actually plans to take away economic support. He announced last week that the Treasury will not extend Federal Reserve credit facilities that are scheduled to expire at year-end and wants any unspent funds returned to the Treasury.

“This a serious policy mistake,” says Zandi. “Taking down the facilities significantly weakens the Fed’s firewall,” which helped protect the financial system from the economic chaos that prevailed in March and April due to the pandemic. “Given the raging pandemic and fading of any remaining fiscal support, odds are uncomfortably high that the firewall will be breached.” 

Zandi notes that even if the incoming Biden White House wants to renew the Fed’s lending facilities, new legislation to fund them may be required. The current facilities were financed with funds from the Coronavirus Aid, Relief, and Economic Security Act, which was passed almost nine months ago.

Other looming time bombs for the U.S. economy are the expiration of moratoriums on federal student loan debt payments and rental evictions and the expiration of two unemployment relief programs that provide 13 million Americans with unemployment benefits.

The Pandemic Emergency Unemployment Compensation Program extends unemployment benefits to individuals who had exhausted state or federal unemployment benefits. The Pandemic Unemployment Assistance Program provides up to 39 weeks of benefits to the self-employed who are not eligible for regular or extended unemployment compensation.

The combination of all these developments doesn’t augur well for the U.S. economy, but it could avoid another recession if the incoming Biden Administration and Congress agree to another economic rescue package of about $1.5 trillion by mid-February and if 25 million  Americans are inoculated with the coronavirus vaccine before Mother’s Day in early May, writes Zandi.

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