‘Costly, but Worth It’: Fed’s Powell Urges More Stimulus

‘Costly, but Worth It’: Fed’s Powell Urges More Stimulus

Printer-friendly version
Plus, Pelosi defends $3 trillion relief package
Wednesday, May 13, 2020

More Coronavirus Spending May Be ‘Costly, but Worth It,’ Fed’s Powell Says

Federal Reserve Chairman Jerome Powell warned Wednesday that the U.S. economy could suffer prolonged damage if Congress doesn’t provide additional aid to address the coronavirus pandemic and its toll on businesses and households.

“Additional fiscal support could be costly, but worth it if it helps avoid long-term economic damage and leaves us with a stronger recovery,” Powell said in a videoconference hosted by the Peterson Institute for International Economics. “This tradeoff is one for our elected representatives, who wield powers of taxation and spending.”

Powell cautioned that the pandemic “is the biggest shock our economy has felt in modern times” and that the economic outlook remains risky and “highly uncertain.” He said that the Fed will release a survey this week showing that, among people who were working in February, nearly 40% of those in households making less than $40,000 a year had lost a job in March.

The Fed has acted aggressively to support the economy and the financial system, and Powell again pledged that it would continue to do so. He added that the fiscal response so far — nearly $3 trillion worth of support for businesses, households, health-care providers and state and local governments — has been “the fastest and largest response for any postwar downturn.”

But he warned that the recovery could be slow — and that the scars could take much longer to fade without additional action. “The record shows that deeper and longer recessions can leave behind lasting damage to the productive capacity of the economy,” he said. “Avoidable household and business insolvencies can weigh on growth for years to come.”

Worry about the debt later: Congress is divided along stark partisan lines over what additional steps to take in response to the crisis, and how quickly they may be needed. House Democrats have proposed a $3 trillion package of additional relief and plan to vote on it Friday, but formal bipartisan talks are on hold as President Trump and many Republicans say they prefer to wait and see how the $2 trillion CARES Act passed in March is working before considering any new legislation. Some Republicans have also expressed concerns over additional spending given a rapidly rising national debt and a deficit that is expected to reach nearly $4 trillion this year, about four times higher than was projected just a few months ago.

Powell said Wednesday those debt concerns can — and must — be addressed, but not until the pandemic has passed. “I do think the time to do that is during good times, when the economy is strong and unemployment is low,” he said. “Now, when we are facing the biggest shock that the economy has had in modern times, is, for me, not the time to prioritize considerations like that. I do think that we can come back to them fairly quickly, which is to say a few years down the road when the economy is well and truly recovered or at least mostly recovering.”

A no on negative rates: Powell again dismissed calls for the Fed to embrace negative interest rates, an extraordinary policy move that some investors have anticipated — and which Trump again advocated on Tuesday. “The committee’s view on negative rates really has not changed,” Powell said. “This is not something that we’re looking at.”

Why it matters: Fed chairs are usually circumspect in offering Congress any public guidance on fiscal policy, which falls outside their monetary policy purview. Powell may have technically steered clear of crossing that line, but he left little doubt where he comes down on the question of more stimulus.

Watch Powell’s comments here.

Pelosi Defends $3 Trillion Coronavirus Relief Bill

House Speaker Nancy Pelosi on Wednesday defended the massive $3 trillion coronavirus relief package Democrats released Tuesday, telling the Associated Press that the pandemic “is the biggest disaster that our country has ever faced” and that “the American people are worth” the unprecedented cost of the new bill.

Pelosi acknowledged that the plan is a starting point for talks with the Trump administration and Senate Republicans, who have labeled the proposal as dead on arrival.

White House Press Secretary Kayleigh McEnany said in a tweet Wednesday that the president “has been clear that any future coronavirus aid package must prioritize Americans’ health and the nation’s economic prosperity. House Democrats are once again using this crisis to play politics and push their partisan agenda.”

McEnany also called Pelosi’s bill “an unserious proposal written to appease her base” and charged that the legislation “is overflowing with spending unrelated to the coronavirus.”

Quote of the Day: Governors Call for More Help

“Each day that Congress fails to act, states are being forced to make cuts that will devastate the essential services the American people rely on and destroy the economic recovery before it even gets off the ground.

“With widespread bipartisan agreement on the need for this assistance, we cannot afford a partisan process that turns this urgent relief into another political football. This is not a red state and blue state crisis. This is a red white and blue pandemic. The coronavirus is apolitical. It does not attack Democrats or Republicans. It attacks Americans.”

– National Governors Association Chair Larry Hogan, the Republican governor of Maryland, and Vice Chair Andrew Cuomo, the Democratic governor of New York, in a statement again calling on Congress to provide $500 billion in fiscal aid to cover state budgetary shortfalls due to the pandemic.

We want to hear from you. Send your tips and feedback to yrosenberg@thefiscaltimes.com. Follow us on Twitter: @yuvalrosenberg, @mdrainey and @TheFiscalTimes. And please tell your friends they can sign up here for their own copy of this newsletter.

Column of the Day: How to Interpret the GOP's Deficit Concern

Bloomberg’s Jonathan Bernstein argues that when Republicans talk about the dangers of the deficit — as they’ve increasingly been doing when it comes to the question of additional coronavirus-relief spending — they’re not really referring to the gap between federal outlays and receipts. “Instead,” he says, “what they’re actually talking about is the gap between how much a spending program or tax plan costs and what they think it’s worth.”

More Bernstein:

“If you listen to mainstream Republicans with that in mind, what they say is generally coherent (whether one agrees or disagrees with the specific positions). By contrast, if we take their deficit talk to mean that they actually care deeply about balancing the federal budget, then they are wildly incoherent — not only when they increase federal budget deficits each time there is unified Republican government, but even when Democrats are in the White House, when they are equally uninterested in making deals that would reduce those real deficits by sacrificing Republican tax or spending preferences.

“The problem with this is it undermines the discipline of budgeting. Budgeting should be about trade-offs, but if you don’t think in terms of comparing different items, then the concept of trade-offs becomes foreign. …

“One more thing. War-on-budgeting thinking isn’t only a problem because it makes actual budgeting difficult. It also, by insisting on consistent tax and spending preferences no matter what, makes Republicans inherently opposed to using fiscal policy to influence the economy. Even as Federal Reserve Chair Jerome Powell asks Congress to do more to stimulate the economy — something that surely is in Republicans’ electoral interests as the incumbent party — they are reluctant to spend more now, just as they were reluctant to reduce actual federal budget deficits early in the administration of President Donald Trump, when economic times were good.”

Read the full piece at Bloomberg.


Views and Analysis