(Reuters) – While the U.S. economy came back stronger than expected in the third quarter, the rise in coronavirus infections is concerning and small businesses and households need more support from fiscal aid, Cleveland Federal Reserve Bank President Loretta Mester said Thursday.
“The fact that we don’t have a fiscal package is very concerning,” Mester said during an interview with Bloomberg TV. “With the disparate impact of this pandemic that’s where fiscal policy plays a role because fiscal policy can be really targeted to the households and small businesses that really need the aid.”
The Fed official reiterated that monetary policy will remain accommodative to support the economy as it heals from the crisis caused by the pandemic. Fed officials slashed interest rates to near zero in the spring and are purchasing $120 billion a month in Treasury securities and mortgage backed securities – purchases that policymakers say were started to help market functioning but are now also providing monetary accommodation.
But Mester noted that fiscal policy is needed to help workers and business owners stay home if they have been exposed to the virus. “It’s not clear to me that monetary policy necessarily is the right tool to address those concerns,” Mester said.
Some investors are speculating that the Fed will need to provide more stimulus as infections rise across the country, increasing health risks for workers and posing a threat to the recovery.
Asked if she would be in favor of increasing the scale of the Fed’s asset purchases or changing the maturity of those purchases, Mester said she didn’t want to “prejudge” the Fed’s December policy meeting. She said it would also be helpful for the Fed to clarify its forward guidance for future purchases.
“I think we’re in a good place with our monetary policy because we are very accommodative,” she said.
(Reporting by Jonnelle Marte; Editing by Chizu Nomiyama)