WASHINGTON (NEXSTAR) — Federal Reserve Chair Jerome Powell warned that a tentative recovery from the pandemic recession could falter unless the federal government supplies additional economic support — including direct payments to most U.S. household.
The comments came Tuesday just hours before President Donald Trump cut off talks with Democrats over an economic aid package and then tweeted he wanted a standalone deal focused only on $1,200 stimulus checks. It’s important to note House Speaker Nancy Pelosi has regularly said she won’t support standalone stimulus bills, meaning Trump’s tweet is largely symbolic.
The moves from Trump and the White House would mean that millions of jobless Americans and struggling businesses and states will receive no further federal support for weeks, if not months, to come, just as the economy is struggling to recover from a deep recession.
Powell, in a speech, asserted that economic support from the government — including expanded unemployment insurance payments, a second round of checks and financial support for small businesses — has, so far, prevented a recessionary “downward spiral” in which job losses would reduce spending, forcing businesses to cut even more jobs.
But the U.S. economy still faces threats, and without further aid, those downward trends could still derail the recovery, Powell said.
“The expansion is still far from complete. Too little support would lead to a weak recovery, creating unnecessary hardship for households and businesses,” Powell said in a speech to the National Association for Business Economics, a group of corporate and academic economists. “Over time, household insolvencies and business bankruptcies would rise, harming the productive capacity of the economy, and holding back wage growth.”
The chairman noted that the economic recovery has slowed in recent months compared with its rapid improvement in May and June. Incomes fell in August and job growth weakened in September, slowing to just 661,000, less than half the gains of 1.5 million in August and 1.8 million in July. The economy has recovered only slightly more than half the 22 million jobs that were lost in March and April.
“A prolonged slowing in the pace of improvement over time could trigger typical recessionary dynamics, as weakness feeds on weakness,” he said.
During a question-and-answer session with economists, Powell noted that the pandemic recession has disproportionately harmed in-person service industries, especially restaurants, bars, hotels, travel companies, movie theaters and other entertainment venues. The heavy damage to those industries has left millions of people unemployed, likely for an extended period, until they are either finally recalled to their previous jobs or switch to new careers.
“The right thing to do and the smart thing to do in the long run is to support those people as they return to their old jobs or find new jobs,” the chairman said.
In recent months, in speeches and in testimony to Congress, Powell has repeatedly urged lawmakers to enact an additional economic aid package. Fed chairs typically avoid inserting themselves into policy debates, but Powell has stressed that the Fed can only lend money to help spur growth.
A $2 trillion financial rescue package that Congress approved in March, as well as previous aid measures, were “truly extraordinary,” Powell said, enabling U.S. households to pay bills and maintain their spending even as unemployment soared to 14.7% in April.
The Associated Press contributed to this report.