Federal Reserve Chair Jerome Powell again cautioned that the central bank and Congress may need to do more to prevent longer-term economic damage from the coronavirus pandemic — and that concerns about the massive federal budget deficit shouldn’t prevent such action.
In an interview with “60 Minutes” that aired Sunday night but was conducted last Wednesday — the same day he gave a market-rattling speech in which he said that additional fiscal stimulus “could be costly but worth it” — Powell reiterated that the Fed and Congress have both acted aggressively.
“The Congress has done a great deal and done it very quickly. There is no precedent in post-World War II American history that's even close to what Congress has done. They have passed $3 trillion in stimulus, which is 14% of GDP. It is vastly larger than anything they've ever done,” Powell said.
He then added: “And the question is, will it be enough? And I don't think we know the answer to that. It may well be that the Fed has to do more. It may be that Congress has to do more. And the reason we've got to do more is to avoid longer run damage to the economy. If we let people be out of work for long periods of time, if we let businesses fail unnecessarily, waves of them, there'll be longer term damage to the economy. The recovery will be slower. The good news is we can avoid that by providing more support now.”
Asked what kind of support lawmakers should provide, Powell offered broad suggestions: “I would say, if I may, that policies that help businesses avoid avoidable insolvencies and that do the same for individuals -- keep workers in their homes, keep them paying their bills.” He also said that additional aid to state and local governments is “something that deserves a careful look.”
Powell also again shot down the idea of lowering interest rates into negative territory, questioning whether they boost economic activity: “I continue to think, and my colleagues on the Federal Open Market Committee continue to think that negative interest rates is probably not an appropriate or useful policy for us here in the United States.”
White House adviser says another stimulus bill may not be needed: Powell’s carefully worded comments — widely seen as urging lawmakers to provide more support for the economy — place the Fed chair, a Republican, squarely in the middle of a brewing political battle. House Democrats last week pushed through a $3 trillion coronavirus relief package. Republicans, including President Trump, by and large say they prefer to “pause” and assess the effectiveness of the trillions of dollars in relief funds already provided.
White House economic adviser Kevin Hassett said Monday that another phase of coronavirus legislation may not be necessary at all. “If the economy continues the momentum that we’re beginning to see over the last couple of weeks of data, then I think that one might conclude that the stimulus we’ve already passed is enough,” Hassett told reporters Monday. “But if that doesn’t happen, we’re really learning everyday a little bit more about how the economy responds to this.”
Hassett reportedly acknowledged that the Paycheck Protection Program for loans to small business may need additional funding and that the government may still need to provide more help to hard-hit business sectors. But his comments stand in contrast to the Fed chair’s warning that, while the economy will likely begin to recover over the second half of the year, the unemployment rate could hit 25% and the economic pain “could stretch through the end of next year.”
What’s next: Powell will appear (remotely) before the Senate Banking Committee Tuesday morning. “Expect senators on the banking panel to try eliciting more support for their preferred view when he appears before them,” The Washington Post’s Tory Newmyer writes.