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US recovery would be stronger, faster with more aid: Fed's Powell

·2-min read
Federal Reserve Chair Jerome Powell warns of the perils of insufficient support to the US economy
Federal Reserve Chair Jerome Powell warns of the perils of insufficient support to the US economy

The US recovery from the pandemic downturn would be "stronger and faster" with more government aid to protect against the possibility of accelerating job losses, Federal Reserve chief Jerome Powell said Tuesday.

The central bank chief's comments come amid an ongoing impasse between Democrats and Republicans in Washington over how much more to spend to bolster the economy after crucial provisions of the $2.2 trillion CARES Act expired.

"Too little support would lead to a weak recovery, creating unnecessary hardship for households and businesses," Powell said in an address to an economics conference.

"Even if policy actions ultimately prove to be greater than needed, they will not go to waste."

Powell, who has long said more economic support is likely needed, warned that if economic improvements slow, that "could trigger typical recessionary dynamics, as weakness feeds on weakness." 

A long period of "unnecessarily slow progress" could continue to exacerbate existing disparities in the economy, he said, which "would be tragic."

In Congress, Democratic House Speaker Nancy Pelosi has proposed an economic stimulus measure costing $2.2 trillion but President Donald Trump's administration wants to spend no more than $1.6 trillion.

While Pelosi last week again began talking regularly with Treasury Secretary Steven Mnuchin, her Republican counterpart in the negotiations, the two sides have yet to find a compromise weeks before Trump stands for a second term in office against Democratic challenger Joe Biden.

"Chairman Powell's warning could not be more clear: robust action is immediately needed to avert economic catastrophe from the devastation of the coronavirus pandemic," Pelosi said on Tuesday.

The CARES Act passed as the pandemic struck in March included extra $600 weekly payments to the unemployed as well as a program of loans and grants for small businesses but those expired around the start of August.

Powell noted the positive effects of both programs on the economy, with a feared rise in bankruptcies among small firms not occurring and many consumers saying their financial well-being had improved during the pandemic.

"Still, since it appears that many will undergo extended periods of unemployment, there is likely to be a need for further support," he said.

And despite the early success in protecting against job losses, there has been an increase in permanent job cuts and layoffs, Powell said.

"There is a risk that the rapid initial gains from reopening may transition to a longer than expected slog back to full recovery," he added.

Limiting the continued spread of the virus will be key to sustaining the economy, the Fed chair said, including following medical advice about wearing masks and social distancing.

hs/cs/ft