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Powell Warns of Prolonged Economic Pain Without Help Powell Warns of Prolonged Economic Pain Without Help
(about 1 hour later)
WASHINGTON — Federal Reserve Chair Jerome H. Powell delivered a message to his fellow policymakers on Tuesday: Faced with a once-in-a-century pandemic that has inflicted economic pain on millions of households, go big. WASHINGTON — Jerome H. Powell, the Federal Reserve chair, delivered a blunt message to Congress and the White House on Tuesday: Faced with a once-in-a-century pandemic that has inflicted economic pain on millions of households, go big.
“Too little support would lead to a weak recovery, creating unnecessary hardship for households and businesses,” Mr. Powell said in remarks before the National Association for Business Economics.“Too little support would lead to a weak recovery, creating unnecessary hardship for households and businesses,” Mr. Powell said in remarks before the National Association for Business Economics.
“Over time, household insolvencies and business bankruptcies would rise, harming the productive capacity of the economy, and holding back wage growth,” he said. “By contrast, the risks of overdoing it seem, for now, to be smaller.” “Over time, household insolvencies and business bankruptcies would rise, harming the productive capacity of the economy and holding back wage growth,” he said. “By contrast, the risks of overdoing it seem, for now, to be smaller.”
Six months into the pandemic, millions of Americans remain unemployed as the coronavirus keeps many service industries operating below capacity. The unemployment rate has fallen more rapidly than many economists expected, dropping to 7.9 percent in September, and consumer spending is holding up, but Mr. Powell highlighted — as he has before — that the economy’s resilience owes substantially to strong government assistance that’s been provided to households and businesses. Nearly seven months into the pandemic, millions of Americans remain unemployed as the coronavirus keeps many service industries operating below capacity. The unemployment rate has fallen more rapidly than many economists expected, dropping to 7.9 percent in September, and consumer spending is holding up. But Mr. Powell again highlighted that the economy’s resilience owed substantially to strong government assistance that has been provided to households and businesses.
“Taken together, fiscal and monetary policy actions have so far supported a strong but incomplete recovery in demand,” Mr. Powell said. Those actions, he said, have “muted the normal recessionary dynamics that occur in a downturn,” like a hit to spending that causes further layoffs. That included direct payments to families, forgivable loans to small businesses and an extra $600 per week in unemployment benefits, which Mr. Powell said had “muted the normal recessionary dynamics that occur in a downturn,” like a hit to spending that causes additional layoffs.
But critical supports, including expanded unemployment insurance benefits, lapsed at the end of July, and stopgap measures have since run dry. While lawmakers are debating another relief package, a deal is far from certain as Democrats, Republicans and the White House continued to spar over the size and scope of additional aid. But that assistance has since run dry, putting what Mr. Powell called an “incomplete recovery” at risk without the government pumping more money into the economy.
Top Trump administration officials have pointed to the falling unemployment rate as a sign that the economy is experiencing a rapid rebound. But Mr. Powell, who noted the labor market is improving more quickly than had been expected, said “there is still a long way to go.” He added that because “it appears that many will undergo extended periods of unemployment, there is likely to be a need for further support.” “There is still a long way to go,” he said regarding jobs, adding that “there is likely to be a need for further support” given “many will undergo extended periods of unemployment.”
One ongoing risk, he said, is that more typical recession dynamics could kick in should economic weakness drag on — a development that would only exacerbate the already uneven labor market costs, which have so far have been borne disproportionately by minorities, women and low-wage workers. The comments were a clear signal that the Fed remained worried about the economy’s ability to continue its rebound without more government spending to prop up struggling households and businesses. One big risk, Mr. Powell noted, was that prolonged economic weakness could perpetuate job losses that have weighed most heavily on women, people of color and low-wage workers.
“A long period of unnecessarily slow progress could continue to exacerbate existing disparities in our economy,” he said. “That would be tragic, especially in light of our country’s progress on these issues in the years leading up to the pandemic.”“A long period of unnecessarily slow progress could continue to exacerbate existing disparities in our economy,” he said. “That would be tragic, especially in light of our country’s progress on these issues in the years leading up to the pandemic.”
Mr. Powell, who was named to the chair post by Mr. Trump, has become an important influence for members of Congress during the pandemic recession, pushing for continued economic support and emphasizing that concerns about whether the government is taking on too much debt can wait until the crisis has passed. House Speaker Nancy Pelosi of California and Representative Richard E. Neal of Massachusetts are among those who have cited his advice when discussing their efforts to pass more stimulus. Ernie Tedeschi, a policy economist at Evercore ISI, said that while Mr. Powell had made similar statements in the past, “this was more urgent.”
Despite Mr. Powell’s increasingly frequent calls for sustained government help, lawmakers have been unable to reach agreement on additional aid for out-of-work families, struggling local governments and hard-hit businesses. That lack of aid could have wider economic repercussions if consumer spending slows and businesses are forced to cut more jobs. “I get the sense that he is getting worried that if we don’t have another fiscal package, that the recovery we’ve had may be in jeopardy,” Mr. Tedeschi said.
Mr. Powell may be a credible voice in pushing for continued government support partly because he has a long track record of fretting about the national debt, a habit that he seems to be temporarily putting aside. While the government is spending far more money than it is taking in this year, he said Tuesday that “this is not the time to give priority to those concerns.” Mr. Powell has become an important influence for members of Congress during the pandemic recession, pushing for continued economic support and emphasizing that concerns about whether the government is taking on too much debt can wait until the crisis has passed. Speaker Nancy Pelosi of California and Representative Richard E. Neal of Massachusetts, are among the Democrats who have cited his advice when discussing their efforts to pass more stimulus.
Instead, he has reiterated time and again that it is important to the return the economy to full strength and that both the Fed and Congress need to provide ongoing help. Yet despite Mr. Powell’s increasingly frequent calls for sustained government help, lawmakers have been unable to reach agreement on additional aid for out-of-work families, struggling local governments and hard-hit businesses, including airlines. House Democrats passed a $2.2 trillion stimulus plan last week, but the White House and Republicans have rejected that price tag as too big.
“This will be the work of all of government,” he said. “The recovery will be stronger and move faster if monetary policy and fiscal policy continue to work side by side to provide support to the economy until it is clearly out of the woods.” Top Trump administration officials have played down the need for another big fiscal package by pointing to the falling unemployment rate as a sign that the economy is experiencing a rapid rebound. And many Republican lawmakers have begun publicly fretting about the ballooning federal deficit, which is expected to top $3 trillion this year.
But Mr. Powell, along with many of his Fed colleagues, has also made clear that monetary and fiscal policy can only do so much to gird the economy and that the recovery will be determined in large part by the path of the virus. The Fed chair did not weigh in on what sort of package was appropriate. But Mr. Powell, who has a long track record of worrying about the federal debt, has tried to convince lawmakers that “this is not the time to give priority to those concerns.”
Mr. Powell, whose institution is set up to operate independently of the White House, was unambiguous in recommending a solution, one that comes in contrast to the message and example that has at times been held out by the Trump administration. Instead, he has reiterated time and again the importance of returning the economy to full strength, and that both the Fed and Congress need to continue to provide help.
“We should continue do what we can to manage downside risks to the outlook,” Mr. Powell said, adding that doing so requires “following medical experts’ guidance, including using masks and social-distancing measures.” “This will be the work of all of government,” Mr. Powell said. “The recovery will be stronger and move faster if monetary policy and fiscal policy continue to work side by side to provide support to the economy until it is clearly out of the woods.”
One of his colleagues was even blunter — and more worried. But Mr. Powell, along with many of his Fed colleagues, has also made clear that monetary and fiscal policy can only do so much to buttress the economy and that the recovery will be determined in large part by the path of the virus.
“Because of the United States’ inability to control the virus, we’ve experienced approximately 21 percent of the world’s deaths, despite housing only about 4 percent of the world’s population,” Patrick Harker, the president of the Federal Reserve Bank of Philadelphia, said in a separate speech on Tuesday. Mr. Powell, whose institution is set up to operate independently of the White House, was unambiguous in recommending a solution, one that contrasts with the message and example that has at times been held out by the Trump administration.
The virus is still circulating despite coming down in some places, Mr. Harker said, and “in recent days, we’ve even seen alarming spikes in other areas, like New York City, that we had hoped had permanently suppressed their infection rates.” “We should continue do what we can to manage downside risks to the outlook,” Mr. Powell said, adding that doing so required “following medical experts’ guidance, including using masks and social-distancing measures.”
The Fed itself has gone to great lengths to support the economy, cutting interest rates to near-zero in March, rolling out a massive bond-buying program and setting up emergency lending efforts, many of them backed by Treasury Department funding. One of his colleagues was more blunt — and more worried.
While the Fed invoked its emergency powers in the 2008 recession, it has gone even further this time around, buying municipal debt and corporate bonds to shore up key markets. “Because of the United States’s inability to control the virus, we’ve experienced approximately 21 percent of the world’s deaths, despite housing only about 4 percent of the world’s population,” Patrick T. Harker, the president of the Federal Reserve Bank of Philadelphia, said in a separate speech on Tuesday.
Mr. Powell said he does not regret rolling out those never-before-tried programs, which have faced criticism from lawmakers and watchdog groups. The virus is still circulating even as cases come down in some places, Mr. Harker said, and “in recent days, we’ve even seen alarming spikes in other areas, like New York City, that we had hoped had permanently suppressed their infection rates.”
Some argue that the state and local government program isn’t generous enough. Others insist that the corporate program should come with more strings — like employee retention requirements. Such restrictions would have been difficult or impossible to implement in the Fed’s corporate bond program as currently designed. The Fed itself has gone to great lengths to support the economy, cutting interest rates to near-zero in March, rolling out a large bond-buying program and setting up emergency lending efforts, many of them backed by Treasury Department funding.
“I don’t know how I would have been able to explain to the public that we didn’t go to the limit of what we can do,” Mr. Powell said during a question-and-answer session following his remarks. “History will judge how well we did.” While the Fed invoked its emergency powers in the 2008 recession, it has gone even further this time, buying municipal debt and corporate bonds to shore up key markets.
Mr. Powell said he did not regret rolling out those programs, which had never been tried before and have faced criticism from lawmakers and watchdog groups.
Some argue that the state and local government program isn’t generous enough. Others insist that the corporate program should come with more strings — like employee retention requirements. Such restrictions would have been difficult or impossible to carry out in the Fed’s current corporate bond program.
“I don’t know how I would have been able to explain to the public that we didn’t go to the limit of what we can do,” Mr. Powell said during a question-and-answer session after his remarks. “History will judge how well we did.”