As businesses shuttered and millions hit the unemployment line last spring, the most dour predictions saw the United States heading for another Great Depression of spiraling collapse and years of massive joblessness.
The worst has been avoided.
But new academic research and commentary this week from Federal Reserve officials suggest the path of the US recovery remains much in doubt, and the programs approved last spring to buffer the economy from the pandemic may still be in for their stiffest test.
Cash that households socked away over the summer from rich unemployment benefits will begin to run dry; small business loans appear to have limited bankruptcies and closures so far but were not designed for the long haul; Federal Reserve programs that helped unlock a massive round of private corporate financing may have left companies with difficult-to-service debt if business does not fully rebound.
"Given the magnitude of the economic downturn triggered by the pandemic, we still face the possibility of a coming wave of credit downgrades and defaults," authors including Jeremy Stein, a Harvard University professor and former Fed Governor, warned in a paper being presented Thursday at the Brookings Institution, one of several which spelled out the risks facing the US economy in the coming months.
After its emergency credit programs allowed companies to sell a record $1.7 trillion in corporate bonds to private investors through August, the Fed may have to rescue those markets if the bonds start to go bad, or risk the sort of financial crisis that has so far been avoided, the authors wrote.
The problems may not spool out all at once. But heading toward winter, when epidemiologists fear the spread of the virus will accelerate, renewed health fears may curb spending, make businesses less likely to hire and invest, and even prompt new restrictions - a phase the UK is entering, and which other European nations may face as case counts rise.
Boston Fed President Eric Rosengren said the steps taken so far "would have been fine if the pandemic lasted three months, but the pandemic isn't lasting three months."
"My baseline is that the pandemic gets worse this fall and winter," he told Reuters on Wednesday. "Some parts of the country will do a lockdown or people will choose to do so...Either way it is going to result in a decrease in economic activity."
ROLLER COASTER, NOW WHAT?
In the roughly six months since a national state of emergency was declared, the US economy has been on a roller coaster - plummeting in March and April, reopening and rebounding in June and July, then reaching a plateau of sorts.
The pace of the initial recovery surprised many forecasters, and recent data has provided an explanation: the massive aid rolled out in March by the government did its job and then some.
Personal income was stable, small businesses used liberal access to loans to stay afloat, and families actually stuffed money into savings accounts as enhanced benefits gave many of the newly unemployed more than they were earning at their jobs.
A Fed report this week noted savings and checking accounts were about $700 billion higher at the end of June than in March.
But that money will eventually be spent. Proceeds of things like Paycheck Protection Program loans to small businesses will be used, and that may well happen before the economy fully reopens. The Metropolitan Opera on Wednesday said there would be no live performances until at least September, a high-profile example of how the entertainment and hospitality industry may face an extended recession even if other parts of the economy do better.
Congress is currently deadlocked over further aid, and it is unlikely any decisions will be made before the presidential election in six weeks.
In an analysis of the PPP program also to be discussed at Brookings on Thursday, economists Glenn Hubbard of Columbia University and Michael Strain of the American Enterprise Institute said it had been successful in stemming firm closures early on, but is still "unfolding" as the country's battle with the pandemic lengthens.
"PPP was designed for a short shutdown that would be followed by a strong and rapid recovery. But the shutdown was longer than anticipated and the recovery decelerated after a burst of improvement in May and June," the two wrote, advising that more open-ended programs, such as federal business interruption insurance or outright grants, might be needed.
And more help may be needed for individuals. Fed Chair Jerome Powell told a congressional hearing Wednesday there should be no doubt that the progress the economy has made so far is a result of the federal actions last spring - and that it may depend on more going forward.
"The good economic data we have seen since May to a great extent reflects...the checks, unemployment insurance. It really helped keep people in their homes, keep them spending," Powell said. "There is a long way to go...We need to stay with it."