Powell’s remarks at a virtual news conference following the Fed’s two-day policy meeting came just a day after the number of new U.S. coronavirus infections topped 100,000 for the first time in a single day.
“We have been concerned that the downside risks, though, are prevalent now, which are really the risk of the further spread of the disease and also the risk that households will run through the savings they’ve managed to accumulate on their balance sheet, and that could weigh on activity,” Powell said. “What we see is continued growth, continued expansion but at a gradually moderated pace.”
Case counts have been escalating, with a surge spreading across the Midwest and Plains states. Health officials fear the coronavirus crisis will intensify further going into the flu season. And as colder weather forces people indoors, restaurants, bars and other venues may be limited in how much business they can safely conduct outside.
“We’ve gotten through the first five to six months of the expansion better than expected," Powell said. "But we do see in Europe — and look what’s happening here — a spike in cases as the cold weather arrives. I think we have to be humble relative to where we are with this disease.”
The Fed signaled Thursday that policymakers would stick to their current economic response, keeping interest rates near zero. Meanwhile, the nation waits for final election results, is gripped by a pandemic and stares down an uncertain recovery.
“The path of the economy will depend significantly on the course of the virus. The ongoing public health crisis will continue to weigh on economic activity, employment, and inflation in the near term, and poses considerable risks to the economic outlook over the medium term,” according to a statement released after the Fed’s meeting.
The Fed’s regular meeting fell as votes from Tuesday’s presidential election continued to be counted. When asked about the election, Powell said he was “very reluctant to comment on the election, directly or indirectly.”
Uncertainty around who will be in the White House in January is also obscuring any guesses at the timing and scope of another stimulus package, as millions of struggling households, businesses and local governments stare down a difficult winter.
Powell has long cautioned that the recovery rests on getting the public health crisis under control, which would give people more confidence to resume their old routines and spending habits. On Thursday, Powell again asserted that the country would have a stronger recovery with more fiscal aid.
“You see a lot of discussion on both sides of the aisle, on both sides of the Hill, that suggest generally that there will be something,” Powell said.
Senate Majority Leader Mitch McConnell (R-Ky.) on Wednesday said a stimulus bill would be the priority when the Senate goes back into session next Monday and should be completed before the end of the year. McConnell said a deal could include state and local aid, which Democrats have long advocated for.
Powell has repeatedly called for more aid from Congress, particularly when it comes to getting direct relief to those in industries most affected by the pandemic, such as restaurants, retail and hospitality. The Fed has also come under increased pressure to widen the reach of its own emergency lending programs and to consider new ways it can fill the economy’s lingering gaps.
Powell said the Fed was not out of ammunition. For now, the Fed is continuing to increase its holdings of Treasury securities and agency mortgage-backed securities at least at the current pace to keep the markets healthy.
“If things deteriorate, that’d be a case where you would want to continue the facilities and maybe change them and have some new ones,” Powell said.
Powell said the Fed was “just now turning” to questions about whether to extend the emergency lending programs beyond the end of this year. Those decisions would have to be made jointly with the Treasury Department. Powell declined to specify whether he had spoken with Treasury Secretary Steven Mnuchin specifically about the extension.
Powell on Thursday said that the existing facilities have “generally served their purposes” and have supported the flow of credit to the markets. Yet the Fed’s $600 billion Main Street lending facility has been widely criticized for stringent requirements and meager uptake and has so far issued only $3.7 billion in loans. Last week, the Fed widened the program’s terms by lowering the minimum loan threshold from $250,000 to $100,000.
Powell has said that many companies that can’t take on more debt at the moment might be better served by a grant from the Paycheck Protection Program, which Congress could redeploy in another stimulus package.
Economists warn that the country is headed for a devastating winter, one that could be exacerbated by political gridlock in the wake of this week’s election. Millions of Americans risk having their power and water shut off as unpaid utility bills come due. And without more federal action, protections for renters, out-of-work Americans and students borrowers will expire by the end of the year.
All of those factors have cast doubt on how quickly the economy will recover in the final stretch of 2020. By the end of the third quarter, the economy had recovered two-thirds of the ground it lost during the first half of the year. But much uncertainty remains.
The October jobs report, set to be released Friday morning, will offer a new snapshot of how many Americans have been brought back into the workforce and whether the pace of jobs is waning. On Thursday, the Labor Department reported that 751,000 workers filed for unemployment benefits last week, slightly below claims from the week prior but still well above pre-pandemic levels.
“We are a long way from our goal," Powell said. "We’re sort of halfway there on the labor market recovery at best, and there are parts of the economy where it is going to be hard until there is a vaccine.”