PROVIDENCE – At first glance, the latest unemployment numbers indicate the economy might be starting to bounce back.
But that data fails to capture the full extent of the economic turmoil caused by COVID-19, which Eric Rosengren, president and CEO of the Federal Reserve Bank of Boston, warned is far from over. In a virtual talk hosted by the Greater Providence Chamber of Commerce on Friday, Rosengren painted a picture of the 2020 economy bleaker than many national projections suggest.
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While the latest Federal Open Market Committee projected a 9.3% unemployment rate nationally, Rosengren said he believes unemployment will remain in the double digits for the rest of the year, which he attributed to “persistent economic headwinds from the pandemic over the second half of the year.” That forecast also does not account for a potential more severe second wave of the virus, he said.
Acknowledging that the May unemployment data shows some gains over previous months, Rosengren noted that the true unemployment rate may be more than three percentage points higher than data shows when accounting for people who misclassified themselves as employed when they are in fact considered unemployed on temporary layoff. Additionally, the number of people who want a job but are not actively looking for one has increased since the pandemic hit, further suggesting the severity of labor market disruptions.
Rosengren also pointed to disproportionate unemployment among certain demographics – those aging 16 to 24, Hispanic and Black workers and those with lower levels of formal education – as evidence that the “picture is not as bright as the headline unemployment rate suggests.”
The severe economic consequences point to the need for more federal relief through both monetary and fiscal policy, Rosengren said. Among them is the newly unveiled Main Street Lending program, which offers small, deferred-interest loans to small and medium-sized businesses.
Under the revised terms of the program, eligible businesses can receive loans of a minimum of $250,000 with a five-year maturity and no principal due for the first two years, as well as a one-year deferred interest period.
Since launching Monday, the Federal Reserve Bank of Boston has seen a “steady stream of interest” from lenders, with over 200 financial institutions of various sizes registering as of Thursday, Rosengren said. While lenders approve and dole out the loans to eligible businesses under the terms set by the Federal Reserve, the Fed will purchase a 95% interest in the loan, absorbing most of the risk and allowing lenders to create additional balance sheet capacity for businesses in need.
Rosengren expressed optimism in the ability of the program to help both struggling local businesses survive and lenders maintain credit, noting that the program may also be expanded to nonprofits. Still, persistently high unemployment combined with low inflation necessitates additional policy stimulus, he said.
Nancy Lavin is a PBN staff writer. You may reach her at Lavin@PBN.com.
