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Jerome H. Powell, the Federal Reserve chair, said it was better to overdo the pandemic policy response to avert “tragic” fallout than to undershoot.
WASHINGTON — Federal Reserve Chair Jerome H. Powell delivered a message to his fellow policymakers on Tuesday: Faced with a once-in-a-century pandemic that has inflicted economic pain on millions of households, go big.
“Too little support would lead to a weak recovery, creating unnecessary hardship for households and businesses,” Mr. Powell said in remarks before the National Association for Business Economics.
“Over time, household insolvencies and business bankruptcies would rise, harming the productive capacity of the economy, and holding back wage growth,” he said. “By contrast, the risks of overdoing it seem, for now, to be smaller.”
Six months into the pandemic, millions of Americans remain unemployed as the coronavirus keeps many service industries operating below capacity. The unemployment rate has fallen more rapidly than many economists expected, dropping to 7.9 percent in September, and consumer spending is holding up, but Mr. Powell highlighted — as he has before — that the economy’s resilience owes substantially to strong government assistance that’s been provided to households and businesses.
“Taken together, fiscal and monetary policy actions have so far supported a strong but incomplete recovery in demand,” Mr. Powell said. Those actions, he said, have “muted the normal recessionary dynamics that occur in a downturn,” like a hit to spending that causes further layoffs.
But critical supports, including expanded unemployment insurance benefits, lapsed at the end of July, and stopgap measures have since run dry. While lawmakers are debating another relief package, a deal is far from certain as Democrats, Republicans and the White House continued to spar over the size and scope of additional aid.
Top Trump administration officials have pointed to the falling unemployment rate as a sign that the economy is experiencing a rapid rebound. But Mr. Powell, who noted the labor market is improving more quickly than had been expected, said “there is still a long way to go.” He added that because “it appears that many will undergo extended periods of unemployment, there is likely to be a need for further support.”
One ongoing risk, he said, is that more typical recession dynamics could kick in should economic weakness drag on — a development that would only exacerbate the already uneven labor market costs, which have so far have been borne disproportionately by minorities, women and low-wage workers.
“A long period of unnecessarily slow progress could continue to exacerbate existing disparities in our economy,” he said. “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, who was named to the chair post by Mr. Trump, has become an important influence for members of Congress during the pandemic recession, pushing for continued economic support and emphasizing that concerns about whether the government is taking on too much debt can wait until the crisis has passed. House Speaker Nancy Pelosi of California and Representative Richard E. Neal of Massachusetts are among those who have cited his advice when discussing their efforts to pass more stimulus.
Despite Mr. Powell’s increasingly frequent calls for sustained government help, lawmakers have been unable to reach agreement on additional aid for out-of-work families, struggling local governments and hard-hit businesses. That lack of aid could have wider economic repercussions if consumer spending slows and businesses are forced to cut more jobs.
Mr. Powell may be a credible voice in pushing for continued government support partly because he has a long track record of fretting about the national debt, a habit that he seems to be temporarily putting aside. While the government is spending far more money than it is taking in this year, he said Tuesday that “this is not the time to give priority to those concerns.”
Instead, he has reiterated time and again that it is important to the return the economy to full strength and that both the Fed and Congress need to provide ongoing help.
“This will be the work of all of government,” he said. “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.”
But Mr. Powell, along with many of his Fed colleagues, has also made clear that monetary and fiscal policy can only do so much to gird the economy and that the recovery will be determined in large part by the path of the virus.
Mr. Powell, whose institution is set up to operate independently of the White House, was unambiguous in recommending a solution, one that comes in contrast to the message and example that has at times been held out by the Trump administration.
“We should continue do what we can to manage downside risks to the outlook,” Mr. Powell said, adding that doing so requires “following medical experts’ guidance, including using masks and social-distancing measures.”
One of his colleagues was even blunter — and more worried.
“Because of the United States’ inability to control the virus, we’ve experienced approximately 21 percent of the world’s deaths, despite housing only about 4 percent of the world’s population,” Patrick Harker, the president of the Federal Reserve Bank of Philadelphia, said in a separate speech on Tuesday.
The virus is still circulating despite coming down in some places, Mr. Harker said, and “in recent days, we’ve even seen alarming spikes in other areas, like New York City, that we had hoped had permanently suppressed their infection rates.”
The Fed itself has gone to great lengths to support the economy, cutting interest rates to near-zero in March, rolling out a massive bond-buying program and setting up emergency lending efforts, many of them backed by Treasury Department funding.
While the Fed invoked its emergency powers in the 2008 recession, it has gone even further this time around, buying municipal debt and corporate bonds to shore up key markets.
Mr. Powell said he does not regret rolling out those never-before-tried programs, which have faced criticism from lawmakers and watchdog groups.
Some argue that the state and local government program isn’t generous enough. Others insist that the corporate program should come with more strings — like employee retention requirements. Such restrictions would have been difficult or impossible to implement in the Fed’s corporate bond program as currently designed.
“I don’t know how I would have been able to explain to the public that we didn’t go to the limit of what we can do,” Mr. Powell said during a question-and-answer session following his remarks. “History will judge how well we did.”