Fed chairman asks Congress to consider more stimulus

Federal Reserve Chairman Jerome Powell on Wednesday urged Congress to consider another ambitious fiscal rescue package, warning that the economy may need further support to avoid a cycle of business failures, job losses and bankruptcies well after the pandemic passes.

In a Wednesday speech, Powell said the U.S. could suffer serious long-term economic damage from the coronavirus pandemic and called on policymakers to do whatever they can to foster a strong recovery—regardless of the cost.

“The recovery may take some time to gather momentum, and the passage of time can turn liquidity problems into solvency problems,” he said during remarks before an interview with the Peterson Institute for International Economics. 

“Additional fiscal support could be costly, but worth it if it helps avoid long-term economic damage and leaves us with a stronger recovery,” he continued. “This trade-off is one for our elected representatives, who wield powers of taxation and spending.”

Powell’s latest call for fiscal stimulus comes as Republican lawmakers grow increasingly wary of adding to the roughly $3 trillion already spent by Congress to support the economy. House Democrats on Tuesday proposed another massive $3 trillion economic rescue and COVID-19 response package that Republicans promptly declared dead on arrival.

Powell’s Wednesday comments may add to the growing pressure on by rank-and-file Republicans to extend a counteroffer to Democrats after GOP leaders declared a pause on formal bipartisan negotiations.

While the Fed chair praised Congress for the size and depth of its response so far, he warned that further spending may be necessary to stave off “an extended period of low productivity growth and stagnant incomes.”

“There is a growing sense that the recovery may come more slowly than we would like, but it will come. And that may mean that it’s necessary for us to do more,” Powell said during the interview following his remarks. 

“We know that long periods of unemployment leave a shadow over the labor force and over our economy, over people’s lives en masse. We also know that waves of bankruptcies can weigh on economic activity for years,” he continued.

Powell, a Republican seen as moderate, had pleaded with Congress to cut deficits during the economic boom that preceded the crisis. But with the economy cratering as COVID-19 spreads through the U.S., the Fed chair has urged fiscal hawks to temporarily set aside concerns about the mounting debt.

“When the economy is strong and unemployment is low, that’s the time to be addressing those concerns. I think now, when we are facing the biggest shock that the economy has had in modern times, is, to me, not the time to prioritize considerations like that,” Powell said Wednesday.

He and central bank colleagues have also consistently warned that the steep interest rate cuts and trillions in loans and asset purchases deployed by the Fed will not be enough to support the economy alone.

The U.S. economy has lost at least 21.4 million jobs since mid-March as thousands of businesses lay off workers in the face of bankruptcy, according to data released by the Labor Department last week. The unemployment rate in April spiked to 14.7 percent, the highest since the Great Depression, and Powell warned Wednesday that it is likely to peak “over the next month or so.”

Powell also said that 40 percent of those in U.S. households earning less than $40,000 a year lost their jobs in March, citing results from a Fed survey to be released Thursday.

“While we are all affected, the burden has fallen most heavily on those least able to bear it,” Powell said.