Former Federal Reserve chiefs Janet Yellen and Ben Bernanke urged lawmakers Friday not to let a boost to unemployment benefits expire at the end of July and to spend generously while interest rates are low to power the U.S. through the coronavirus pandemic.
In testimony before the special House coronavirus subcommittee, the two most recent former Fed chiefs warned lawmakers that the U.S. could face deep, permanent economic damage without more than $1 trillion in further stimulus. Their appearance comes as congressional leaders begin formal negotiations over the size and scope of another pandemic response and economic rescue package.
Bernanke — a former Republican who disavowed the party in 2015 — and Yellen, a Democrat, said the next congressional stimulus measure should focus on three areas: investing in the medical response to the pandemic, extending enhanced unemployment benefits, and giving local governments enough financial support to sustain crucial services amid steep revenue shortfalls.
“We do not believe that concerns about the deficit and debt should prevent Congress from responding robustly to this emergency,” Yellen said.
“The top priorities at this time should be protecting our citizens from the pandemic and pursuing a stronger and equitable economic recovery,” she added.
Bernanke and Yellen have previously advocated for those positions with more than 150 fellow economists in a letter to congressional leaders last month. Their testimony also served as a more forceful, direct version of Fed Chairman Jerome Powell’s call for extended unemployment benefits and ample aid for state and local governments.
But their Friday appearance before lawmakers, the first for each since they left the Fed, comes as the White House and Congress face a narrowing window to avoid a lapse in fiscal support.
The roughly $2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act signed by President Trump in March increased the weekly unemployment benefit in each state by $600, regardless of the level set by state leaders before the pandemic. That increase is set to expire on July 31, but would likely lapse earlier without a last-minute deal to extend support somehow.
The $600 increase is widely supported by Democrats but opposed by the White House and most Republicans, who fear it is incentivizing workers not to return to their jobs.
“You’re trying to take care of people unemployed; I’m trying to get them back to work,” said Rep. Blaine Luetkemeyer (R-Mo.).
Democrats counter that most workers would lose unemployment benefits if they decline a job offer and say the extra money is crucial as entire industries remain sidelined by the pandemic.
Bernanke, Yellen and a wide range of economists have urged Congress to extend the benefit increase in some form, insisting it does more to support the economy than it does to curb job gains.
“You can lower the $600 so that the replacement ratio is not above 100 percent,” Bernanke suggested. He also proposed a special tax credit for returning workers.
He insisted that there were ways to create an “appropriate incentive to go back to work without taking away support for the unemployed.”