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Fed's Rosengren says U.S. could face a credit crunch by year end if virus worsens

Published 09/23/2020, 03:58 PM
Updated 09/23/2020, 04:55 PM
© Reuters. FILE PHOTO: File Photo: The Federal Reserve Bank of Boston's President and CEO Eric S. Rosengren speaks in New York

© Reuters. FILE PHOTO: File Photo: The Federal Reserve Bank of Boston's President and CEO Eric S. Rosengren speaks in New York

By Jonnelle Marte and Howard Schneider

(Reuters) - The U.S. economy could face more foreclosures and business bankruptcies in the fall and winter if there is a rise in infections and no additional fiscal aid, conditions that could make it harder for consumers and businesses to access credit, Boston Federal Reserve President Eric Rosengren said on Wednesday.

Community and regional banks could especially come under stress if there is a rise in delinquencies in commercial real estate loans as businesses struggle to stay in operation, Rosengren said.

"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," Rosengren said in an interview with Reuters.

The policymaker said his outlook is more pessimistic than the median projection shared by other members of the Federal Open Market Committee, which calls for the unemployment rate to drop to 7.6% this year and for the economy to contract by 3.7% in 2020.

A rise in infections could lead to a sharper decline in economic activity if some parts of the country roll out fresh lockdowns or if consumers opt to stay home out of fear, Rosengren said. Slower growth could also lead inflation to rise more slowly than anticipated, requiring the Fed to keep rates near zero for longer, Rosengren said.

With the pandemic lasting longer than expected, more fiscal aid is needed to keep businesses and households afloat, he said. Some businesses that borrowed in the corporate bond market before the crisis may now face issues paying off that debt, he said.

© Reuters. FILE PHOTO: File Photo: The Federal Reserve Bank of Boston's President and CEO Eric S. Rosengren speaks in New York

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

Latest comments

The virus looks more under control, but damages to the real economy are starting to appear. And way too much power have been used in first instance: 3T$ injected by Fed & all the aids (600$ pw). People getting more money at home than when at work, and now left dry. That's astonishing!
How about not relying on credit as a cure-all. That is the problem. It is a credit-driven economy and it is doomed to fail.
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