Powell says too little stimulus is worse than too much

Jay Powell, the chair of the Federal Reserve, has warned US policymakers that providing too little support for the American economy would be far more dangerous than offering excessive help, as he made one of this most detailed appeals for more fiscal stimulus.

Speaking to the National Association for Business Economics, Mr Powell said the economic recovery from the damage inflicted by the coronavirus was “far from complete” and the “risks of policy intervention are still asymmetric”.

“Too little support would lead to a weak recovery, creating unnecessary hardship for households and businesses,” he said.

“By contrast, the risks of overdoing it seem, for now, to be smaller. Even if policy actions ultimately prove to be greater than needed, they will not go to waste,” he added.

The Fed chair continued: “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.”

Mr Powell’s comments came as Steven Mnuchin, the US treasury secretary, and Nancy Pelosi, the Democratic speaker of the House of Representatives, are struggling to finalise a deal on a new package of stimulus for the American economy.

The White House has offered to approve more than $1.6tn in new spending, but Democrats have been holding out for at least $2tn, and it is unclear whether Republican lawmakers would find any compromise on that scale acceptable.

Mr Powell has repeatedly called for additional fiscal stimulus to keep aiding the US economy as it recovers from the pandemic, but his speech on Tuesday was among the most exhaustive explanations of why it was necessary.

The Fed chair said that it was crucially important for policymakers to “continue to do what we can to manage downside risks to the outlook”. He said that involved containing the virus through “using masks and social distancing measures” but also preventing a slowdown in the pace of economic improvement, which “could trigger typical recessionary dynamics as weakness feeds on weakness”.

“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.”

Mr Powell’s comments came after the employment report for September showed a slowdown in job creation last month, coupled with a drop in the unemployment rate to 7.9 per cent driven by an exodus from the labour force. Meanwhile, permanent job losses are creeping up.

The Fed has already cut interest rates close to zero and vowed to hold them there until inflation hits 2 per cent for some time, according to new guidance issued by the central bank last month. In prepared remarks Mr Powell did not offer further clarity on how that new framework would be applied in practice.

Check Also

Big Give Christmas Challenge set to launch

Support: Ballerina Dame Darcey Bussell The Big Give Christmas Challenge is launching tomorrow with 765 …

Leave a Reply

Your email address will not be published. Required fields are marked *

Follow by Email