Fed’s Powell: Uncertainty clouds economic recovery
Policymaker to keep interest rates near zero as pandemic threat looms
Federal Reserve Chairman Jerome Powell said the pace of the economic recovery has moderated over the past few months and cautioned that the recent rise in coronavirus cases in the United States and around the world is “particularly concerning.”
Powell said Fed officials expect the pace of the recovery to ease compared to strong gains from May and June in economic benchmarks from the labor market to consumer spending, especially given how deeply the economy was gutted in the spring.
Powell’s remarks at a virtual news conference last Thursday following the Fed’s two- day policy meeting came just one 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 even 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.
The Fed signaled last week 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.
A difficult winter
“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 the 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. Last 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., said a stimulus bill would be the priority when the Senate goes back into session 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.
Fed still has some ammo
Powell said the Fed was not out of ammunition. For now, the Fed is continuing to increase its holdings of Treasury securities and agency mortgagebacked 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 decision 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 said that the existing facilities have “generally served their purposes” and have supported the flow of credit to the markets. Yet the Fed’s The $ 600 billion Main Street lending facility has been widely criticized for stringent requirements and meager uptake, and has so far only issued $ 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 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.
Much uncertainty remains
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.
“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.”