Policymakers should continue to do what they can to manage “downside risks” to the economy’s outlook – including taking additional action to stimulate or protect the economy – particularly since the future remains “highly uncertain,” the board chair of the nation’s central bank said Tuesday.
In remarks to the National Association of Business Economics (in a video format), Federal Reserve Board Chair Jerome H. (“Jay”) Powell said one downside risk to the economy is that coronavirus infections might again rise to levels that “more significantly limit economic activity,” in addition to the “tragic effects on lives and well-being.”
He said a second risk is that “a prolonged slowing” in the pace of economic improvement over time could trigger a recession, as “weakness feeds on weakness.”
“A long period of unnecessarily slow progress could continue to exacerbate existing disparities in our economy,” he warned. “That would be tragic, especially in light of our country’s progress on these issues in the years leading up to the pandemic.” He had earlier noted that both jobs and wages had increased in the months immediately before the pandemic became apparent, especially for those in lower-paying jobs.
Powell indicated he advocates for more intervention in the economy by Congress, calling the risks of doing so “asymmetric.”
“Too little support would lead to a weak recovery, creating unnecessary hardship for households and businesses,” he said. “Over time, household insolvencies and business bankruptcies would rise, harming the productive capacity of the economy, and holding back wage growth.”
He called the risks of “overdoing it” in terms of intervention to be even smaller. “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.”
Later in the day, President Donald Trump said via Twitter that he had instructed his representatives negotiating a stimulus deal with congressional Democrats to cut off talks. Trump indicated he would not consider signing any new stimulus deal passed by Congress until after the election.
Chair Jerome H. Powell: Recent Economic Developments and the Challenges Ahead