The Covid-19 public health crisis has sharply reduced the earnings of millions of U.S. households, following the severe curtailment of economic activity needed to contain the spread of the virus. Meanwhile, households continue to confront their ongoing financial obligations. The ability of households to manage these obligations has important consequences for the speed at which the U.S. economy can recover from the current crisis. Households that are wiped out financially in the coming months will not be in a position to strongly resume spending once the virus containment issues have passed. Moreover, a wave of missed payments on mortgages and other types of household debt could propagate through the financial system—weakening financial institutions, unnerving investors, and further prolonging the economic slump.
Dynan, Karen, Gene Amromin, and Jane Dokko. "Helping Homeowners During the Covid-19 Pandemic: Lessons from the Great Recession." Chicago Fed Letter. June 2020.