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.”