Federal Reserve Chair Jerome H. Powell warned Tuesday of ongoing risks to the economy and the consequences of insufficient support from policymakers, offering a sharp reminder that the economic recovery remains fragile, hours before President Trump said he was calling off stimulus relief negotiations until after the November election.
Speaking at the annual meeting of the National Association for Business Economics, Powell emphasized that a rise in coronavirus cases could weigh on economic activity. Public health officials have warned about an uptick of cases during the flu season this winter.
Powell compared the pandemic’s initial shock to “a case of a natural disaster hitting a healthy economy." But he cautioned that if the pace of the recovery persistently slows down, the markings of a more typical economic downturn could bubble to the surface “as weakness feeds on weakness," according to his speech.
“Too little support would lead to a weak recovery, creating unnecessary hardship for households and businesses,” Powell said. “Over time, household insolvencies and business bankruptcies would rise, harming the productive capacity of the economy and holding back wage growth. By contrast, the risks of overdoing it seem, for now, to be smaller. Even if policy actions ultimately prove to be greater than needed, they will not go to waste.”
By some measures, the economy is recovering faster than expected. The unemployment rate dropped to 7.9 percent last month, and Fed officials have upgraded their estimates for how low the unemployment rate could fall over the next few years.
But those gains have not been equally shared, and the coronavirus recession is the most unequal in modern U.S. history. Low-wage, minority workers, Black women, Black men and mothers of school-age children are taking the longest time to find new jobs after the steep job losses in the spring, a Post analysis showed.
On Tuesday afternoon, Trump abruptly tweeted that he had instructed Treasury Secretary Steven Mnuchin to stop negotiating with House Speaker Nancy Pelosi on another relief package.
“I have instructed my representatives to stop negotiating until after the election when, immediately after I win, we will pass a major Stimulus Bill that focuses on hard-working Americans and Small Business,” Trump tweeted.
In a statement after Trump’s tweets, Pelosi responded by saying that the White House was “rejecting the urgent warnings of Fed Chairman Powell today.”
In a question-and-answer session following his speech, Powell said now is not the time to worry about growing the federal debt. Instead, he said the priority should be to get relief to those who still need it.
“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," Powell said.
Fed leaders say that the central bank’s effort to prop up the markets have helped stave off a deeper financial crisis. However, that has mostly helped those at the top who hold investments and retirement savings. Plus, the Fed’s asset purchases and interest rate reductions are more broad-based tools, which can’t target industries lagging behind in the economy.
Meanwhile, Fed’s lending programs to midsize businesses and local governments have been widely criticized for being too onerous and having limited reach. At the same time, many struggling companies can’t afford to go into more debt through a loan administered by the Fed. These companies could benefit from a direct grant, as was given out by the Paycheck Protection Program.
As more time passes, people with jobs in service industries — including restaurants, entertainment or travel — risk being permanently detached from the labor force, Powell said. Women who are more likely to bear child-care responsibilities are being forced into tough decisions about whether to stay in their jobs. And Powell noted that businesses that are forced to file for bankruptcy could hamper the broader recovery.
“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. Once you’re permanently laid off, it’s just more difficult. The data are really clear. It’s just more difficult to get back into the workforce."