Powell: Recovery could stall without Congress
Absent further aid, Fed chair warns of “downward spiral”
Federal Reserve Chair Jerome Powell warned Tuesday that a tentative recovery from the pandemic recession could falter unless the federal government supplies additional economic support.
Powell said that government support — including expanded unemployment insurance payments, direct payments to most U.S. households and financial support for small businesses — has so far prevented a recessionary “downward spiral” in which job losses would reduce spending, forcing businesses to cut even more jobs.
But the U.S. economy still faces threats, and without further aid, those downward trends could still derail the recovery, the chairman said.
On Tuesday afternoon, though, President Donald Trump tweeted that he had “instructed my representatives to stop negotiating until after the election.” Trump’s tweet immediately sent stock prices falling.
In his speech earlier in the day to the National Association for Business Economics, a group of corporate and academic economists, Powell said:
“The expansion is still far from complete. Too little support would lead to a weak recovery, creating unnecessary hardship for households and businesses. 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 economic recovery has slowed in recent months compared with its rapid improvement in May and June. Incomes fell in August. And job growth weakened in September, slowing to just 661,000, less than half the gains of 1.5 million in August and 1.8 million in July. The economy has recovered only slightly more than half the 22 million jobs that were lost in March and April.
“A prolonged slowing in the pace of improvement over time could trigger typical recessionary dynamics, as weakness feeds on weakness,” he said.
During a question-and-answer session with economists, Powell noted that the pandemic recession has disproportionately harmed in-person service industries, especially restaurants, bars, hotels, travel companies, movie theaters and other entertainment venues. The heavy damage to those industries has left millions of people unemployed, likely for an extended period, until they are either finally recalled to their previous jobs or switch to new careers.
“The right thing to do and the smart thing to do in the
long run is to support those people as they return to their old jobs or find new jobs,” the chairman said.
In recent months, in speeches and in testimony to Congress, Powell has repeatedly urged lawmakers to enact an additional economic aid package. Fed chairs typically avoid inserting themselves into policy debates, but Powell has stressed that the Fed can only lend money to help spur growth.
Actual spending — further aid for small businesses, for example, or another round of stimulus checks for individual Americans — would have to come from Congress. Though negotiations between House Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin on a new spending package are ongoing, prospects for a deal remain dim.
A $2 trillion financial rescue package that Congress approved in March, as well as previous aid measures, were “truly extraordinary,” Powell said, enabling U.S. households to pay bills and maintain their spending even as unemployment soared to 14.7 percent in April.