Boston Fed Chief Warns of U.S. Credit Tightening, Calls for More Fiscal Relief

Sep 28, 2020Federal Regulation, News

The United States economy could encounter more business bankruptcies and foreclosures in the coming months if there is an increase in COVID-19 cases and no additional fiscal aid, according to recent comments by Boston Federal Reserve President Eric Rosengren. He added that if delinquencies in commercial real estate rise, regional and community banks could come under more stress. 

“I think the challenge is that we are very likely to face a credit crunch kind of issue as we get towards the end of this year,” said Rosengren in an interview with Reuters

Other members of the Federal Open Market Committee projected the unemployment rate would fall 7.6 percent this year, and the economy would contract by 3.7 percent in 2020. Rosengren’s perspective is more pessimistic, believing that if infections increase and growth is slow, the Fed may have to maintain near-zero inflation rates for a longer period of time. 

Rosengren also pushed for more financial aid and relief, which according to PYMNTS is an outlook shared by others such as Fed Chair Jerome Powell and Treasury Secretary Steve Mnuchin. Congress, however, has yet to pass another relief package. Talks are expected to continue this week, although many on Capitol Hill remain skeptical that a deal will be made before the election.

Since the COVID-19 pandemic has lasted longer than expected, businesses that borrowed in the corporate bond market before the crisis may face more difficulties paying off debt, Rosengren said.

“It would have been fine if the pandemic lasted three months, but the pandemic isn’t lasting three months,” Rosengren said. “It’s lasting longer than that and so there’s definitely a need for more targeted spending.”

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