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Fed's Kaplan sees downside risk from virus resurgence

FILE PHOTO: Dallas Federal Reserve Bank President Robert Kaplan looks on during an interview in his office at the bank's headquarters in Dallas, Texas, U.S. January 9, 2020. REUTERS/ Ann Saphir

(Reuters) - Dallas Federal Reserve Bank President Robert Kaplan said on Monday the U.S. economy is rebounding from a deep contraction, but the resurgence of COVID-19 poses downside risks, particularly if it overwhelms hospitals in certain areas.

“Right now, the trends are in the wrong direction,” Kaplan told a virtual event for the Louisiana communities of Shreveport and Bossier City.

Cases of the novel coronavirus have surged across the United States, prompting authorities to renew restrictions on economic activity in some cities, including El Paso, Texas, as well as whole states such as Utah.

Kaplan repeated his view that the U.S. economy would likely end the year about 2.5% smaller than it began, and grow about 3.5% next year as economic activity continues to rebound. But rising infections could slow the pace of growth both this quarter and early next year, he said.

Also a risk, he said, was households running out of savings socked away from the U.S. government’s earlier fiscal stimulus. That aid has kept household spending so far from dropping off as it usually does when unemployment rises and the economy slows.

Fed policymakers have called for new fiscal relief to keep damage to the economy from becoming more long-lasting.

Reporting by Ann Saphir; Editing by Chris Reese and Peter Cooney

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