“I think the economy will respond pretty strongly, and we’ll see a strong rebound,” Bostic said. “Right now, my team and I, our models project that will start more robustly in the summertime.”
In the meantime, however, the economy will likely need still more help, he said. And he tempered optimism by warning of continued risks, including financial “scarring” of households and a widening skills mismatch between jobless Georgians and new job openings.
With the pandemic triggering unprecedented layoffs and business closures, Congress in March provided fiscal aid in the form of loans to businesses and payments to households. As the nation’s central bank, the Fed’s role is primarily monetary, and it has aggressively cut interest rates and backstopped loans.
Bostic was named Atlanta Fed president in June 2017 when the economy was growing and unemployment was low. Nearly three years later, the pandemic slammed the brakes on the economy, slashing gross domestic product by more than 30% as many businesses shut down and workers stayed home. Activity rebounded as many restrictions were lifted, but some sectors remain virtually crippled — especially those that relay on in-person spending.
Only when people have assurance that their health is not at risk from the virus, are they expected to return to restaurants, concerts, hotels, bars and travel.
The nation still has about 10 million fewer jobs than before the pandemic. Georgia has about 139,000 fewer jobs now than in February. That damage is not spread evenly: Much of the loss has been among blue-collar workers that can least afford extended income loss.
“We have a lot of families and businesses right now that are in a precarious position,” Bostic said.
In the past year, the number of Georgia jobs paying less than $27,000 has plunged nearly 20%, according to researchers at Harvard who have been tracking the recovery. Jobs in leisure and hospitality are down 24% since the pandemic started, according to the researchers.
Yet Bostic thinks it could be much worse and that the CARES Act provided crucial benefits that kept many families out of poverty and prevented a tidal wave of evictions.
“There have been a number of studies and almost all of them I’ve seen show that prompt and vigorous action by the Congress and state and local governments — eviction moratorium, that sort of thing — all made a huge difference,” he said. “And for those who say Congress can’t get anything done, they actually got something big done and it made a big difference.”
With unemployment still high and growth apparently stalling out, Congress passed another relief package in late December, a mix of benefits that runs into March.
The aim is to keep households financially afloat until the economy recovers enough for them to find work. The fear is that the help might not keep them above water — or might lapse too soon.
“A lot of people ask, ‘Is this enough?’” Bostic said. “It’s hard to know because we’ve never been through anything like this before.”
The Fed has taken a series of often-aggressive measures to prop up the economy during the pandemic, including loans to banks, backstopping some financial markets and loosening regulations.
Bostic, a member of the Fed’s rate-setting committee, which has pushed interest rates to record lows, is comfortable with the central bank’s position. “I think our policy right now is in a good place.”
A retreat from those measures is coming, but only as the economy grows stronger, he said. “So much of this will depend on what the facts on the ground are when we get there. If (the economy) comes back super-strong, it’s warranted to start having a conversation about how we get out of our more emergency position stance.”
Fed officials will talk publicly about that retreat for a long time before actually backing away, he said. “We should signal that we are talking about these things well before we’re planning on actually making the move.”
There is a more insidious, longer-term danger: What if the pandemic is reshaping the economy in ways that leave many workers without the skills that will get them decent jobs? That is a kind of economic “scarring” that does permanent damage to households as well as the larger economy, he said.
“Well, that’s a concern,” Bostic said. “That is why we are working so hard around issues of workforce development.”
The Atlanta Fed has created a Center for Workforce and Economic Opportunity aimed at providing information about what skills are in increasing demand and offering resources for how to get those skills.
Right now, the future is especially hard to read. Even as the economy struggles from pandemic to vaccine and — perhaps — normality, the questions pile up: How quickly will the vaccines be distributed? How effective will they be? Can the virus be conquered? And will consumers feel confident enough to return to old habits? Can businesses expect current demand for their goods and services to last?
The result now is a hesitation to make investments or hire, a prudence signaled by a reliance on temp workers rather than permanent hiring.
“A lot of business leaders have seen these spikes in demand, because there’s so much swirl, they are not sure they are solid, they’re not sure they are going to endure,” Bostic said. “One thing I learned in Economics 101 is that business hates uncertainty. Everybody hates uncertainty.”