The failure of lawmakers to agree on additional COVID-19 relief has left some policy experts including Federal Reserve Chairman Jerome H. Powell worried that the current economic recovery will lose some steam unless Washington creates another round of fiscal stimulus.
“The fiscal policy actions that have been taken thus far have made a critical difference to families, businesses, and communities across the country. Even so, the current economic downturn is the most severe in our lifetimes,” Powell said during a news conference following the Federal Open Market Committee’s Wednesday (Sept. 16) meeting. “It will take a while to get back to the levels of economic activity and employment that prevailed at the beginning of this year, and it may take continued support from both monetary and fiscal policy to achieve that.”
The fiscal stimulus Powell referenced included programs such as the $600 weekly federal boost to state unemployment benefits, which ran out in late July, payments of $1,200 to many households and other actions intended to put cash in unemployed workers’ pockets.
Fiscal stimulus must come from Congress. The Fed, which Powell chairs, sets policies aimed at influencing inflation and the flow of credit.
Republicans and Democrats have cited the need for more fiscal stimulus, but disagreements between Democrats who control the House and aides to President Donald J. Trump have scuttled any plans for more assistance. In the short-term, some unemployed workers are getting an additional $300 per week as a result of a Trump executive order.
As for what’s required going forward, Powell said Wednesday: “My sense is that more fiscal support is likely to be needed. Of course, the details of that are for Congress, not for the Fed. But I would just say there are still roughly 11 million people still out of work due to the pandemic, and a good part of those people were working in industries that are likely to struggle.”
He continued, “Those people may need additional support as they try to find their way through what will be a difficult time for them. We’ve also got struggling small businesses, especially those in the business of facing directly to the public. And we have state and local governments dealing with a drop in revenue at the same time spending has gone up, much of it related to the pandemic and economic effects.”
Paige Marta Skiba, an economist and law professor at Vanderbilt University, told CNBC more stimulus and stronger consumer protections are essential as the COVID-19 crisis continues.
“We’re in, maybe, the eye of the storm right now,” she said, according to the network.
Powell also said he fears unemployed workers saved a material portion of the stimulus funds they received but are burning through those savings now that the economy has dried up.
CNBC quoted Bruce Van Saun, CEO of Citizens Financial Group, as saying the bank’s customers remain relatively “flush” six weeks after the extra unemployment funds ended. CNBC said he, too, called for more federal help.
“I think the economy has held up given all the stimulus that we’ve seen from the government and the Fed. Some of the benefits from the stimulus will start to wane,” Van Saun said.