Powell reiterated his calls for more help from Congress, saying “the case for fiscal policy right now is very, very strong.”
Still, Powell declined to point to what specifically should go into another stimulus bill. On Wednesday, congressional leaders neared an agreement on a roughly $900 billion relief package after months of partisan gridlock. The bill is likely to include direct payments but leave out aid to state and local governments.
“All of these government policies trying to work together to create a bridge across this economic chasm that was created by the pandemic. But there is a group where they don’t have a bridge yet,” Powell said.
In their latest round of economic predictions since September, Fed leaders predict that unemployment will fall to 5 percent by the end of next year, and 4.2 by the end of 2022. Officials also showed a more hopeful outlook for GDP. In September, Fed leaders projected that GDP would grow 4 percent by the end of 2021 but revised those estimates to suggest growth of 4.2 percent.
Yet there are signs the economic recovery is slowing. November marked the slowest month of job growth since the spring, with the unemployment rate ticking down slightly from 6.9 to 6.7 percent. Retail sales fell last month. Millions of Americans are behind on rent and utility bills, and nearly 8 million Americans have fallen into poverty since the summer.
“The path of the economy will depend significantly on the course of the virus,” the Fed said in a statement following the meeting. “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.”
The Fed is capping off one of the most consequential years ever for the central bank, one that involved an unprecedented response to the economic damage wrought by a global pandemic. This week also marks the Fed’s final policy meeting before the Biden administration comes to office, bringing with it a slate of new economic advisers tasked with shaping a recovery that doesn’t leave people behind.
A key question is what will happen to the Fed’s emergency lending programs, jointly run by the Fed and Treasury Department. The facilities have become a kind of litmus test for how policymakers rate the strength of the recovery.
Arguing the programs did their jobs, Treasury Secretary Steven Mnuchin last month announced that he wouldn’t extend most of facilities beyond the end of the year. Mnuchin also requested that the Fed return hundreds of billions of dollars that had been allocated for the programs under the Cares Act but never spent, saying the money could be reallocated by Congress for more direct use.
Mnuchin’s decision spurred a rare public clash between Treasury and the Fed, which wanted the programs to stay in place as a backstop to the markets in case the recovery faltered. Democrats and many economists criticized Mnuchin’s move, saying it was premature to cut off the extra support.
The future of those programs could depend on the views of Janet L. Yellen, President-elect Joe Biden’s nominee for treasury secretary. Democrats have called for a reboot to the programs, while Republicans have done the opposite.
Asked whether the Fed would consider rolling out more facilities if economic conditions turned south, Powell said “we do not have any plans for the future about this. We’re very focused on getting through year end.” Powell said he had not discussed policy issues with Yellen but did congratulate her on her nomination.