Powell backs more aid for the unemployed
Fed chair reiterates that interest rates will stay near zero
Federal Reserve Chair Jerome Powell told Congress Tuesday that lawmakers should provide more aid to the unemployed amid the COVID-19 pandemic even as Republicans and Democrats remain sharply divided over extending a weekly $600 federal supplement to weekly unemployment benefits.
Powell also renewed the Fed’s vow to keep interest rates near zero, noting the economy faces “significant uncertainty” and the prospect of “longerterm damage” as a result of the crisis.
Powell noted that many of the 20 million or so Americans who have lost jobs during the outbreak “will not be able… to go back to their old jobs or even their old industries,” singling out travel, tourism and restaurants that have been especially hurt.
“We have a long road ahead of us to get these people back to work.”
“Some form of support for the people going through that is likely to be appropriate,” Powell said in testimony before the Senate banking committee.
He agreed that Black people make up a disproportionate share of workers who have lost jobs during the crisis in a hearing that was laced with references to an economy that often places African Americans at a disadvantage. The exchanges occurred amid a backdrop of weeks of nationwide protests following the recent killings of unarmed black men by white police officers.
In May, the unemployment rate for white people fell from 14.2% to 12.4%, while the rate for Black people rose from 16.7% to 16.8%, Powell and several committee members acknowledged. Also, about 41% of Black-owned businesses have permanently shut down, compared with 17% of white-owned business, according to a study by the University of California at Santa Cruz.
“I think that’s a long run weakness in our economy,” Powell said of economic inequities between whites and Blacks. “That is not a healthy feature of our economy.”
Many Democratic lawmakers want to extend an additional $600 a week in unemployment benefits that Congress has added to state benefits beyond a July 31 deadline. But Republicans have said the generous payments discourage many laid-off workers from returning to their old jobs. White House officials instead have proposed a bonus for workers who return to their jobs.
“Several Republicans are eager to let that help expire,” said Sen. Elizabeth Warren, DMass.
Powell did not specifically address whether the $600 supplement should be continued.
The Fed chief also suggested that Congress should strongly consider a bailout package for states and cities that have been financially pummeled by massive health care costs and lower revenue during the crisis.
“It’s certainly an area I would be looking at if I were you,” he said.
Democrats back such assistance while Republicans are divided. States and local governments have shed nearly 1.5 million jobs during the pandemic.
The Fed last week kept its key interest rate near zero and signaled it doesn’t expect to lift it until at least 2022, as the outbreak continues to severely curtail economic activity.
Recently, the economy has shown signs that it is emerging from the depths of the worst recession on record as states begin allowing businesses shuttered by the crisis to reopen.
The Commerce Department said retail sales jumped 17.7% in May, easily topping economists’ estimates. And April’s 16.4% plunge in sales was revised and down to 14.7%. Also, employers unexpectedly added 2.5 million jobs in May after shedding a record 22 million the two prior two months.
Powell pointed to “stabilization, and in some areas a modest rebound, economic activity.”
But he added, “The levels of output and employment remain far below their pre-pandemic levels, and significant uncertainty remains about the timing and strength of the recovery,” Noting the uncertainty is rooted in the course of the virus, he added, “Until the public is confident that the disease is contained, a full recovery is unlikely.” The recession also could leave deep scars.
“Moreover, the longer the downturn lasts, the greater the potential for longer-term damage from permanent job loss and business closures,” he said.
While a solid comeback is expected during the second half the year, many businesses have permanently closed down despite billions of dollars in government aid and many laidoff workers won’t be able to return to their former employers. Unemployment is projected to remain elevated at about 10% by the end of the year.
The Fed on Monday said it will buy up to $750 billion in corporate bonds, expanding a program to purchase corporate debt through exchange-traded funds. The news helped reverse a stock market sell-off. The program should push down borrowing costs for large companies and prod investors to shift money from low-yield corporate bonds to stocks.
The Fed also has launched a spate of extraordinary programs to provide financing to distressed lending markets, including small and midsize businesses; student, auto and credit card loans, and states and cities.
The central bank last week said it will continue buying about $80 billion a month in Treasury bonds and $40 billion in mortgage-backed securities to ensure those markets continue to function smoothly. The Fed has been gradually tapering down the purchases each week.
During the crisis, the Fed has bought more than $2 trillion in Treasurys and mortgage bonds to revive financial markets that had virtually halted amid widespread fears.
“We have a long road ahead of us to get these people back to work.”
Jerome Powell Federal Reserve chair