The recovery still has “a long way to go” and the economy continues to need significant monetary and fiscal support, Federal Reserve Chairman Jerome Powell said Tuesday, in what many saw as a warning to lawmakers in Washington. The failure to provide such support “would lead to a weak recovery, creating unnecessary hardship for households and businesses,” he warned.
Speaking to a meeting of the National Association for Business Economics, Powell said the main risk right now is doing too little to sustain the recovery, and that policymakers shouldn’t worry about overdoing it.
“Even if policy actions ultimately prove to be greater than needed, they will not go to waste,” 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.”
Applauds previous efforts. Powell hailed the “truly extraordinary” fiscal response in the early days of the pandemic. “The unanimous passage of the CARES Act and three other bills passed with broad support in March and April established wide-ranging programs that are expected to provide roughly $3 trillion in economic support overall—by far the largest and most innovative fiscal response to an economic crisis since the Great Depression,” he said.
But warns of the risks of slowing. Although the recovery has moved faster than many experts predicted so far, Powell warned that the outlook remains “highly uncertain” and that the pandemic’s continued fallout could result in a longer-than-expected path to full recovery, if not another recession. “[A] prolonged slowing in the pace of improvement over time could trigger typical recessionary dynamics, as weakness feeds on weakness,” he said. “Over time, household insolvencies and business bankruptcies would rise, harming the productive capacity of the economy, and holding back wage growth.”
Powell noted that the suffering would not be evenly distributed. “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.”
Need to act now. “That is a lot of the urgency we’ve been feeling — to do what we can as quickly as we can, so we can avoid those problems,” Powell said. “It’s now when we need to be working on that problem.”
Pelosi quickly endorses. House Speaker Nancy Pelosi (D-CA) cited the Fed chief’s remarks as she continued to push for a new stimulus package Tuesday morning, before President Trump announced that he had pulled the plug on the negotiations. “Chairman Powell’s warning could not be more clear: robust action is immediately needed to avert economic catastrophe from the devastation of the coronavirus pandemic,” Pelosi said in a statement Tuesday. “It is long overdue for Republicans to join us in passing a bill that meets the needs of the American people by protecting our heroes, crushing the virus and putting money in the pockets of workers.”