Jay Powell, the chair of the Federal Reserve, has warned Congress against withdrawing fiscal support for the US economy, saying it could imperil the recovery from the shock of the coronavirus crisis
“I would just note that there are something like 25m people who have been dislodged from their job either in full or in part due to the pandemic,” Mr Powell told the House financial services committee on Wednesday. “It would be a concern if Congress were to pull back from the support that it’s providing too quickly.”
Mr Powell’s comments came after he told the US Senate on Tuesday that “significant uncertainty” remained around the shape and timing of the rebound from the sudden recession afflicting the world’s largest economy.
His words came as the debate remains heated on Capitol Hill about whether to renew $600 per week in emergency unemployment insurance enacted during the crisis. The aid expires in July.
Democrats say it should be extended until January, but Republicans contend that the money discourages people from returning to work as states lift restrictions on activity.
Fed officials typically shy away from prescriptions to lawmakers on taxes and spending, and Mr Powell said he did not want to make specific recommendations for measures Congress should take. But he did suggest that the unemployed would need more help.
“It would be wise to look at ways to continue to support both people who are out of work and also smaller businesses that may not have vast resources for a continued period of time, not forever, but for a period of time so that we can get through this critical phase,” Mr Powell said.
“The economy is just now beginning to recover, it’s a critical phase and I think that support would be well-placed at this time.”
Negotiations over a new fiscal package — on top of the $3tn passed during the pandemic — have still not ramped up on Capitol Hill. In addition to the controversy over unemployment benefits, partisan differences have developed over help for cash-strapped state and local governments, which Republicans are also resisting.
This week, Ben Bernanke and Janet Yellen, Mr Powell’s predecessors at the Fed, signed a joint letter with 130 economists saying “insufficiently bold” action by Congress risked leading to “prolonged suffering and stunted economic growth”.
“If Congress fails to act, state and local governments face potentially disastrous budget shortfalls, and the Congressional Budget Office estimates the unemployment rate will probably be more than 11 per cent at the end of the year,” the letter said.
Patrick McHenry, the top Republican on the House panel, said Mr Powell’s comments on the labour market were “informative for our policymaking” but rebuked the Fed chair for straying outside his terrain.
“Monetary and fiscal policy are two very different things. I would urge you, and the leadership of the Fed, to stick to monetary policy,” Mr McHenry said.
Maxine Waters, the Democratic chair of the panel, slammed the Trump administration and congressional Republicans for dragging their feet on new stimulus.
“The May jobs report showed slightly better jobs numbers than the April jobs report, which was the worst in recorded history, but there are still major reasons for alarm,” she said. “Yet this administration and Senate Republicans are not moving with any urgency.”