Don't count too much on Covid-19 vaccine, warn Powell and Lagarde

Two of the world’s most powerful central bankers said on Thursday that economic risks from the coronavirus remain high, and they cautioned against putting too much faith in a quick fix from a vaccine, delivering a sober message as US lawmakers signalled that another stimulus package was unlikely before year’s end.

“The next few months could be challenging,” Federal Reserve Chair Jerome H Powell said during a webcast panel discussion, where he appeared alongside his European counterparts. Both Powell and Christine Lagarde, head of the European Central Bank, warned that while recent progress toward a vaccine was welcome news, it was too soon to write off looming risks to the global recovery as coronavirus cases surge globally, causing renewed lockdowns in some jurisdictions.

“From our standpoint, it’s just too soon to assess with any confidence the implications of the news for the path of the economy, especially in the near term,” Powell said.

On Monday, the pharmaceutical company Pfizer announced encouraging results from its vaccine trials, nudging stock markets toward new heights. On Thursday, stocks ceded some of their recent gains, with losses deepening after Powell and Lagarde spoke. 

While Powell acknowledged the vaccine progress, he cautioned that “significant challenges and uncertainties” remain around timing, production, distribution and the efficacy for different groups.

Lagarde, explaining that she did not want to be “exuberant” about the treatment, also pointed to “uncertainties — about the logistics, about the transportation, about the rolling out, about the fabrication” and about how many people will actually be vaccinated in 2021. Economic risks in the United States remain acute as millions remain out of work, government support fades and the country sets records for virus cases and hospitalisations, prompting cities and states to impose new restrictions on activity.  

Federal Reserve chairman Jerome Powell

Yet prospects for another relief package before year’s end narrowed on Thursday as Democrats and Republicans continued to disagree over the scope and cost of a bill and as a top Republican indicated that Senator Mitch McConnell was no longer planning to rely on Treasury Secretary Steven Mnuchin to cut a deal with Democrats, reflecting his party’s wariness that Mnuchin had been too eager to concede.

Meanwhile, International Monetary Fund Managing Director Kristalina Georgieva said on Friday the global economy's road to recovery must be underpinned with continuously strong policy and that fiscal and monetary support should not be withdrawn prematurely.
 

Georgieva made the remarks in a video message to the Caixin Summit in Beijing.

The New York Times