By Jonnelle Marte
(Reuters) – The U.S. economy’s recovery from the coronavirus crisis will likely be uneven and could be reversed if businesses open too soon and lead to a second wave of infections, Philadelphia Federal Reserve Bank President Patrick Harker said Tuesday.
Harker said there are two possible scenarios for how the economy could fare. In the best outcome, the economy reopens in June, and with the technology needed to contain the virus, there is not a second wave of infections in the fall.
In a more pessimistic scenario, the economy opens too quickly and there is a second wave of the virus. “Not only would this be a health catastrophe, but it would reverse the recovery as well,” Harker said during a speech delivered virtually to the Delaware State Chamber of Commerce.
Harker said that when the recovery happens it will likely be uneven, with some types of businesses, like manufacturers, likely coming back before travel and hospitality.
That uneven recovery could create problems for the banking sector, which is “heavily exposed” to troubling sectors like commercial real estate, Harker said, adding that he doesn’t think banks should be issuing large dividends right now.
He said that even if the economy rebounds quickly in the second half, the growth would likely not be enough to offset the contraction seen in the first and second quarters of this year.
“The second quarter data will be brutally painful,” Harker said. “What happens after that to a large extent depends on how the virus moves through our society, and our reaction to it in terms of balancing stay-at-home policies versus an intelligent – and I want to stress, intelligent – reopening.”
(Reporting by Jonnelle Marte; Editing by Chizu Nomiyama)
