Measures of consumers’ propensity to save have surged to historical levels, far above what we saw after the Lehman crash. Some of this reflects “forced saving” because people have been unable to spend and will therefore reverse naturally. But we are also seeing significant precautionary saving, which is a sign that households are preparing for an uncertain future, and uncertainty is likewise a key factor in weak business investment. There are two main sources of uncertainty today. The first source is uncertainty about how the economy will recover from the coronavirus (COVID19), which is evident in the Eurosystem’s latest macroeconomic projections. Our baseline projection sees GDP falling by 8.7% this year, but this is surrounded by a wide range of potential scenarios. In our mild scenario, the drop in GDP would be 5.9% this year, and in our severe scenario it would be 12.6%. In this latter case, output would still be well below its pre-crisis level at the end of 2022. Faced with such an outlook, it is understandable that households are anxious about their future incomes and firms are hesitant about making irreversible decisions. In particular, many citizens fear that, in a slow recovery, some jobs will be lost once government support schemes are phased out. This underlines why it is so important that the recovery is properly managed and that the economy is adequately stimulated. Confidence in government policies is critical to reducing uncertainty, which is itself a form of stimulus.
Moreover, Brookhaven Labs and Cold Spring Harbor Laboratory, as well as a fine array of academic institutions, provide a strong foundation for the island’s tech sector and business sector more broadly. The recent move to create stronger ties between the business community, research labs and SUNY (State University of New York) is a welcome development. It has the potential to help leverage the island’s existing assets to enhance the prospects for economic development. Conclusion To sum up, the incoming data on the U.S. economy has been a bit more upbeat of late, suggesting that the recovery may be getting better established. But, while these developments are certainly encouraging, it is far too soon to conclude that we are out of the woods in terms of generating a strong, sustainable recovery. On the inflation front, the yearover-year rate of consumer price inflation has slowed in recent months, and despite the recent rise of gasoline prices, we expect inflation to moderate further in 2012. Looking ahead, the key challenge for the Long Island economy will be to continue to prepare its residents for the best jobs being created here. Expanding educational access and opportunity and the skills that go along with it will go a long way to broadening participation in the economy to all residents and bolstering Long Island in the future. Thank you for your kind attention. I would be happy to take a few questions. 4  For more information, see the New York Fed’s consumer credit panel. BIS central bankers’ speeches  5