- The CARES Act disrupted the usual recession cycle of layoffs, depressed demand, more layoffs and even less demand
- Powell said lack of action by Congress will lead to a protracted recovery
- Steve Mnuchin and Nancy Pelosi were scheduled to talk again Tuesday about the next round of stimulus
Unless Congress steps up and provides more economic stimulus, the U.S. is likely to face a downward spiral of layoffs and economic decline, Federal Reserve Chairman Jerome Powell warned in a speech at a virtual meeting of the National Association of Business Economics.
“Too little support would lead to a weak recovery, creating unnecessary hardship for households and businesses. Over time, household insolvencies and business bankruptcies would rise, harming the productive capacity of the economy, and holding back wage growth,” Powell said, repeating a warning he has delivered several times in recent months.
The speech is the last word from the Fed ahead of the Nov. 3 presidential election.
Unemployment stood at 7.9% in September, but job creation figures indicate recovery from the coronavirus-induced recession has slowed.
Talks between Democrats and the White House on the next round of stimulus resumed last week after nearly two months. Though both sides say they want an agreement, they remain more than $500 billion apart on the price tag.
House Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin talked for an hour Monday, Pelosi spokesman Drew Hammill said. Politico reported Pelosi told Democrats Monday night the negotiations were going “very slowly,” with supplemental unemployment benefits a key sticking point. The two were scheduled to talk again Tuesday.
Powell urged negotiators to err on the side of more stimulus, not less.
“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,” Powell said, adding that stimulus disrupted the usual recession cycle that leads to lower demand and more layoffs.
Powell, as well as dozens of economists, have said the $2.2 trillion CARES Act adopted in March eased the economic impact of coronavirus, but much of the stimulus provided by the legislation has expired or is on the verge of doing so. The House adopted a more than $3 trillion replacement bill in March that died immediately in the Senate, but last week voted on a compromise measure that trimmed allocations to $2.2 trillion. Republicans have been wavering between $500 billion and $1.5 trillion in stimulus with a group of nearly two dozen voicing opposition to any more stimulus.
Grant Thornton chief economist Diane Swonk joined Powell in calling for more stimulus.
President Donald Trump took issue with the assessments.
Powell noted low-income households have been hit hardest by the economic crisis.
“A long period of unnecessarily slow progress could continue to exacerbate existing disparities in our economy. That would be tragic, especially in light of our country’s progress on these issues in the years leading up to the pandemic,” he said.