A sign reading “Buy Local” with closed restaurants and shops on Main Street on April 10, 2020 in Livingston, Montana.
William Campbell | Corbis via Getty Images
The faster-than-expected recovery in the US economy could not prevent massive small business losses across the country as federal lending and other programs may only serve to postpone a settlement, said Federal Reserve Governor Michelle W. Bowman, on Monday.
Bowman said census data and conversations with bankers have made her concerned that low bankruptcies and generally healthy credit metrics are masking events – and she cited state health restrictions as a source of pressure on small businesses.
“Financial pressures on many small businesses remain acute, and I am concerned that a growing number of small businesses have been closed permanently or are on the verge of failure,” Bowman said in comments eligible for webcast delivery Economic Club of Oklahoma were prepared. She said bankers had told her “that the Paycheck Protection Program and other fiscal measures postponed but did not remove these financial pressures.”
Bowman said the risks to small businesses are one of their biggest doubts about the economic outlook, which is otherwise similar to that of their peers for strong growth this year. She believes the Fed will keep its low interest rates and bond purchases intact until the economy has fully recovered, which “will take time”.
But she went further than other Fed officials in citing the impact of state restrictions on small businesses, suggesting that the states that cracked down hardest on the virus were harming their local businesses.
“These constraints may have been helpful in containing the pandemic, but they appear to have disproportionately affected the ability of small businesses to maintain their businesses and sources of income, resulting in significant cash flow pressures,” Bowman said. She served as state bank commissioner for Kansas before being appointed to the Fed’s executive board by President Donald Trump in 2018 to obtain a Fed seat to represent the interests of the community banks.
The restrictions “came at a very high economic cost,” she said.
Fed officials, including Chairman Jerome Powell, have largely encouraged aggressive efforts to contain the coronavirus as the only surefire way to economic recovery, encouraging the use of tax programs such as the Small Business Lending Paycheck Protection Program to keep households and businesses healthy and healthy hold crisis subsides.