New England states are starting to allow shuttered businesses to reopen after two months of closures. But this is not the time to celebrate: Until the COVID-19 public health crisis is resolved, the economy will probably remain in bad shape.
That’s the word from the Federal Reserve Bank of Boston’s chief executive, Eric Rosengren, who spoke Tuesday ― in an online presentation ― to members of the New England Council, a regional business networking and lobbying group.
Rosengren said the Boston Fed’s internal forecast now shows that the national unemployment rate is likely to remain at double-digit levels through the end of the year, after peaking at around 20 percent. (The rate was nearly 15 percent in April, up from 3.5 percent in February.)
“That’s very sobering,” Rosengren said. “But it’s also a call to action.”
As states allow various sectors to reopen, he said, it’s vital that the timing and design of the relaxing of restrictions don’t result in worse health outcomes. Even when businesses are free to reopen, many of them won’t see much demand until customers feel safe leaving their homes, he said. And without “public health solutions" to the pandemic, Rosengren said, it will be virtually impossible to return to full employment.
“At the root of this economic problem is a public health issue that has to be resolved,” Rosengren said.
He noted that the industries in which social distancing is most challenging — such as hospitality and entertainment — have suffered the steepest employment declines. They also could face the steepest uphill climbs back to normalcy.
“It’s wonderful that we’re at a place now where we can start reopening the economy,” Rosengren said. “That’s not a panacea. What we really need is community [virus] spread to be reduced . . . It’s vital that as we think about the appropriate kinds of business restrictions, we make sure we don’t get worse outcomes and higher unemployment over time.”
Rosengren spoke on the same day that the chairman of the Federal Reserve system, Jerome Powell, testified before the Senate’s banking committee in Washington about the Fed’s initiatives to support the economy and financial markets during the pandemic.
Both Rosengren and Powell highlighted the Fed’s new Main Street Lending Program, which is designed to provide loans to businesses that are struggling because of the pandemic but are too big to take advantage of the government’s Paycheck Protection Program.
Members of Congress have expressed concerns that the Main Street program hasn’t been rolled out quickly enough, given the magnitude of the problem. Powell said it will be launched within the next two weeks, and that “people are working literally around the clock” to put it together.
During the online event in Boston, the president of the New England Council, Jim Brett, asked Rosengren whether the Federal Reserve would consider reducing the minimum loan size for the Main Street program. Rosengren said the Fed will monitor interest in the program and noted it has already cut the minimum loan size from $1 million to $500,000.
“We’re going to be looking to see if we’re getting the funds to the appropriate areas of the economy," he said.
Brett also asked a question that was undoubtedly on the minds of many New England Council members who were listening: How will the region’s economy fare in this pandemic, compared to other parts of the country?
More bad news. Rosengren said that Boston, New York, and several other major metro areas will be harder hit than rural places, where COVID-19 rates are much lower. Cities such as Boston that rely on subways and elevators to move people to and from their offices are inevitably more susceptible to the spread of the coronavirus than places where people commute by car, he said.
Boston, he said, also will be hurt by its dependence on the tourism and higher education sectors, which, by their nature, bring people together from far-flung places.
“There are going to be challenges that places like Boston are going to face that will make it more difficult to fully restore the business environment,” Rosengren said. “In the longer term, it’s an advantage. But in the immediate future, it’s an impediment.”