Bolstering progressive demands for policymakers to provide greater stimulus to avoid worsening the already catastrophic economic effects of the coronavirus pandemic, Federal Reserve Chair Jerome Powell warned Tuesday that insufficient government intervention "would lead to a weak recovery, creating unnecessary hardship for households and businesses."
In a speech delivered virtually at the annual meeting of the National Association for Business Economics, Powell said that public support and financial aid has helped soften some of the negative impacts of the coronavirus crisis on households and businesses, with the "infusion of funds" preventing "a downward spiral in which layoffs lead to still lower demand, and subsequent additional layoffs."
While the unemployment rate has fallen from nearly 15% in April to just under 8% now, Powell explained that a "broader measure that better captures current labor market conditions—by adjusting for mistaken characterizations of job status, and for the decline in labor force participation since February—is running around 11 percent," signaling the "need for further support."
Powell to Congress: The risks of not doing enough are much greater than the risks of doing too much https://t.co/cDGnwTt5tc
— Nick Timiraos (@NickTimiraos) October 6, 2020
"The burdens of the downturn have not been evenly shared," Powell said. "The initial job losses fell most heavily on lower-wage workers in service industries facing the public—job categories in which minorities and women are overrepresented. In August, employment of those in the bottom quartile of the wage distribution was still 21% below its February level, while it was only 4% lower for other workers."
"Combined with the disproportionate effects of Covid-19 on communities of color, and the overwhelming burden of child care during quarantine and distance learning, which has fallen mostly on women," Powell said, "the pandemic is further widening divides in wealth and economic mobility."
Powell explained that when the Covid-19 relief programs contained in the CARES Act were passed in March, legislators were responding to a "disaster hitting a healthy economy," but now, the U.S. economy has severe weaknesses that make it extremely vulnerable to a "tragic" intensification of inequalities.
The Fed chair insisted that the ongoing economic recovery process is a fragile, uphill battle and that too little federal support for a robust recovery is a genuine risk whereas strong state intervention comes with few, if any, downsides.
"The risks of policy intervention are still asymmetric," Powell said. "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."
"By contrast, the risks of overdoing it seem, for now, to be smaller," he continued. "Even if policy actions ultimately prove to be greater than needed, they will not go to waste. The recovery will be stronger and move faster if monetary policy and fiscal policy continue to work side by side to provide support to the economy until it is clearly out of the woods."
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Chye-Ching Huang, senior director for economic policy at the Center on Budget and Policy Priorities, tweeted in support of Powell's pleas for increased federal spending. "The stakes—even more human suffering and long-run damage to people and the health of the economy—are high," she said.
With good reason. The stakes -- even more human suffering and long-run damage to people and the health of the economy -- are high. https://t.co/aYJ4DvTP4Z
— Chye-Ching Huang (@dashching) October 6, 2020
The threat of a prolonged recession and its devastating effects are becoming more acute as time progresses. While an overwhelming majority of voters want Congress to focus on approving economic relief, Senate Republicans are instead prioritizing the confirmation of Judge Amy Coney Barrett, President Donald Trump's nominee to replace the late Justice Ruth Bader Ginsburg on the U.S. Supreme Court, despite a Covid-19 outbreak in the White House and on Capitol Hill and with Election Day less than one month away.
On social media, Washington Post economics reporter Jeff Stein shared a scenario that he called "bleak but possible," in which no additional stimulus is passed before November 3, after which a lame-duck Trump administration refuses to engage with lawmakers—meaning that no deals can be reached before Inauguration Day even as both the pandemic and its corresponding economic damage intensify this winter.
Bleak but possible scenario I hear from ppl:
1/ No stimulus deal by Nov. 3
2/ Biden wins, Trump loses interest in deal w/ Congress. So: No additional stimulus until Jan. 20 at earliest
3/ New wave of cases Nov-Feb causes severe economic damage just as DC is most paralyzed
— Jeff Stein (@JStein_WaPo) October 6, 2020
"If they don't get something done in the next few weeks," Stein said, "there's a fear it will be very hard to get relief passed just as things get bad in the winter."