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Fed’s Mester says it’s hard to imagine quick V-shaped recovery

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imageEconomy11 hours ago (May 29, 2020 10:30AM ET)

(C) Reuters. FILE PHOTO: Cleveland Federal Reserve Bank President Loretta Mester speaks in London

By Jonnelle Marte

NEW YORK (Reuters) – Cleveland Federal Reserve Bank President Loretta Mester said U.S. economic activity could pick up in the third quarter as businesses begin to reopen, but she cautioned the recovery is likely to be slow as consumers and businesses take precautions to limit coronavirus infections.

“The recovery could be slow,” Mester said Friday during an interview with Bloomberg TV. “When we have so many people out of work it’s hard to imagine that we see a quick V-shaped recovery.”

Mester said activity could begin to emerge in the third quarter as the economy begins to reopen, but she said output and employment are not likely to return to levels seen at the start of the year.

Fed officials moved quickly to stabilize markets and support the economy as the coronavirus spread, leading businesses to shut down across the country. The U.S. central bank cut rates to zero, launched a slew of emergency lending facilities and kicked off open-ended asset purchases to improve market functioning.

Policymakers are expected to release their updated economic forecasts when they meet again on June 9 and 10 to discuss monetary policy.

Asked about yield curve control, where the central bank targets borrowing costs across different maturities, Mester said it could serve as a support to forward guidance, if the Fed were to use it. But she said she doesn’t view it as a tool for the Fed to use during this “phase,” where officials are more concerned with market functioning.

“You would have to think hard about how you would implement it,” Mester said.

Fed’s Mester says it’s hard to imagine quick V-shaped recovery

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