Two voting members of the Federal Reserve’s policy-setting body declined to endorse boosting monetary stimulus even as they voiced concerns the U.S. economy will suffer from the surging pandemic.

Cleveland Fed President Loretta Mester said fiscal policy support, not additional monetary-policy action, is what the U.S. needs most as surging Covid-19 infection rates threaten to smother economic activity. Robert Kaplan, president of the Dallas Fed, said he doesn’t support increasing the central bank’s asset purchase program right now, although the economy could contract in the last three months of the year before rebounding during 2021.

“The virus case increase is very concerning and the fact that we don’t have a fiscal package is very concerning,” Mester said Thursday in an interview with on Bloomberg Television with Michael McKee and Jonathan Ferro.

She noted that some sectors of the economy are doing fine while others remain severely damaged.

“With the disparate impact, that’s where fiscal policy plays a role because fiscal policy can be really targeted,” she said, whereas monetary policy is a much more blunt tool for stimulating the economy. “We’re in a good place with our monetary policy because we are very accommodative.”

Recent readings on the U.S. economy point to slowing activity after the third quarter’s robust rebound. U.S. jobless claims rose for the first time in five weeks, Labor Department data showed earlier Thursday, while retail sales increased in October at the slowest pace in six months.

Kaplan would not rule out the possibility that the economy slips back into recession, noting that the virus resurgence will make this quarter and the beginning of 2021 difficult for growth. But he still expects growth of 3.5% or higher for 2021 and said that a vaccine could bring back economic activity in a robust way in the second half of next year.

Better Times

“Better times will be ahead again, but we’ve got to get through a very difficult period first,” Kaplan said later Thursday in a Bloomberg Television interview with David Westin. “We’ll have to see what the fourth quarter looks like. It is possible we could have negative growth if this resurgence gets bad enough and mobility falls off enough.”

Kaplan added that the Fed’s emergency facilities, which have served as a backstop to credit and municipal markets and have provided loans to small- to mid-size businesses, should be allowed to continue into 2021. Most of the facilities, set forth by Congress under the CARES Act, are set to expire Dec. 31.

At its Nov. 4-5 meeting, the FOMC discussed its options for altering large-scale asset purchases as a way to further lower borrowing costs for businesses and households. The Fed is currently buying about $120 billion in Treasuries and mortgage-backed bonds every month, partly aimed at lowering borrowing costs for businesses and households. The Fed’s next meeting is Dec. 15-16.

“I would just continue our bond buying at the same pace that we’re buying,” Kaplan said. “If we needed to, if this got bad enough, we could extend maturities but I wouldn’t increase the size.”

Asked if she supported a move to adjust or increase the purchases, Mester was noncommittal but didn’t lean in favor of a change.

“It’s not clear to me that monetary policy necessarily is the right tool,” she said. “To my mind when you have such disparity across sectors, it’s the fiscal policy that’s the right tool to address those things.”

That bodes poorly for the economy because Congress does not appear poised to act, she added.

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