Fed's Kaplan: Resurgence of virus is muting economic recovery, more aid needed

NEW YORK (Reuters) - The resurgence of coronavirus infections has muted the economic recovery and Congress needs to support the economy by continuing to provide enhanced unemployment benefits and aid to state and local governments, Dallas Federal Reserve Bank President Robert Kaplan said on Wednesday.

"I believe the economy needs a continuation of the unemployment benefits," Kaplan said during an interview with CNN. "It may not need to be in the same form as it currently is, but we need a continuation."

Kaplan declined to say exactly how much aid he thinks lawmakers should provide, but he said the support, along with widespread use of masks, is critical to helping the economy recover.

He projected that U.S. GDP will grow at an annualized rate of 20% in the third quarter, but still expects the U.S. economy to contract by about 5% for the year.

The Fed official said the pace of the recovery will depend on the virus. Kaplan said further shutdowns may be needed in some parts of the country if it appears healthcare systems are at risk of becoming overwhelmed, and emphasized that widespread use of masks can help bring infections down to a more manageable level.

"The issue with the resurgence in the virus is it slowed down or somewhat muted the recovery we’ve been expecting," Kaplan said. "So the better again we manage the virus, the better we’ll recover."

(Reporting by Jonnelle Marte in New York; Editing by Franklin Paul and Matthew Lewis)