Powell Urges More Stimulus From Congress, Citing ‘Strong But Incomplete’ Recovery
Federal Reserve Chairman Jerome Powell on Tuesday cautioned that while economic recovery is progressing more quickly than expected, that recovery “still has a long way to go” and potentially “tragic” consequences could be ahead if the federal government ends its support for the economy too early.
The Fed chair’s comments come as top policymakers in Washington struggle to hash out the terms of the next federal coronavirus aid bill in the final days before the election.
“The recovery will be stronger and move faster if monetary and fiscal policy continue to work side by side,” Powell said in prepared remarks at the National Association for Business Economics annual meeting.
Ending fiscal support now—by failing to pass another aid package—has the potential to derail a recovery that has been faster than expected but is still incredibly fragile, Powell said.
Especially at risk are the wage gains made in past years for workers at the lower end of the income spectrum and gains that women have made in the labor market.
Already, women are exiting the workforce at a substantially higher rate than men because of the demands of childcare and distance learning during the pandemic.
“Even if policy actions ultimately prove to be greater than needed,” Powell said, “they will not go to waste.”
House Speaker Nancy Pelosi (D-Calif.) and Treasury Secretary Steven Mnuchin resumed negotiating the next federal aid bill last week after talks collapsed in August. Top Democrats led by Pelosi and the Trump administration agree on the need for another round of aid, but sharp disagreements over the bill’s price tag and specific policy provisions like federal supplemental unemployment insurance and more aid for state and local governments have so far prevented the two sides from reaching a consensus on the bill. “Chairman Powell’s warning could not be more clear: robust action is immediately needed to avert economic catastrophe from the devastation of the coronavirus pandemic,” Pelosi said in a statement following Powell’s remarks.
At the end of August, Powell announced a major change to the way the Fed maintains inflation. Keeping inflation steady at around 2% in order to keep prices stable is one half of the Federal Reserve’s “dual mandate,” along with ensuring maximum employment levels. Instead of raising rates to keep inflation from overshooting that target, the Fed can now adopt policy that aims for 2% average inflation over time, meaning it will allow inflation to surpass that benchmark if necessary. The change is designed to prevent the central bank from withdrawing critical support to the economy too early during downturns.
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