Federal Reserve Chairman Jerome Powell warned senators Tuesday that the U.S. economy still needs support from Congress and the central bank in the coronavirus recession fight despite a recent uptick in hiring and retail sales.
In testimony before the Senate Banking Committee, the Fed chairman urged lawmakers not to let a string of surprisingly optimistic economic data dissuade them from taking further action to support struggling Americans and industries.
Powell argued that while the economy was slowly beginning to reopen and bring more Americans back to work, the unprecedented scale of the downturn and the lingering threats of the virus that caused it will keep millions unemployed.
“The fact is, we’ve had the largest economic shock in living memory and the economy is going to recover from that, but we just have to be a little patient with it,” Powell told lawmakers, praising a record-breaking $3 trillion in fiscal support already approved by Congress.
“I would say there’s a reasonable probability that more will be needed, both from you and the Fed.”
He also said that “a full recovery is unlikely” until the public has confidence that the coronavirus has been contained.
Powell’s appearance comes amid rising hopes of a quicker-than-expected recovery from a recession that has cost the U.S. more than 20 million jobs and spiked the unemployment rate to a record 14.7 percent in April.
The U.S. added 2.5 million jobs to payrolls in May, according to the Labor Department, as 2.7 million workers returned from temporary layoffs to businesses that were able to reopen last month as states began lifting social distancing orders. The unemployment rate dropped to 13.3 percent in May, below April’s historic peak but well above the roughly 10 percent height during the Great Recession.
Retail and food service sales also rose 17.7 percent in May as stores previously shuttered to slow the spread of COVID-19 were allowed to reopen, according to data released Tuesday by the Commerce Department.
The relatively strong May data has bolstered optimism among President TrumpDonald TrumpJan. 6 panel faces double-edged sword with Alex Jones, Roger Stone Trump goes after Woodward, Costa over China Republicans seem set to win the midterms — unless they defeat themselves MORE and congressional Republicans with less than five months until an Election Day that may swing on the state of the U.S. economy.
Trump touted the May retail spending surge as a sign of greener pastures ahead, declaring Tuesday to be “a BIG DAY FOR THE STOCK MARKET, AND JOBS” in a tweet shortly after the data was released.
The early signs of recovery have also left many Republicans wary to add more to the federal deficit and rising national debt after already approving trillions in aid, some of which has not yet been deployed. Several GOP senators urged Powell on Tuesday to consider the potential inflationary and financial stability dangers of additional fiscal and monetary support in light of the positive news.
“I’m not for a minute suggesting that we’re out of the woods, but the anecdotal evidence has been very, very encouraging,” said Sen. Pat ToomeyPatrick (Pat) Joseph ToomeyBlack women look to build upon gains in coming elections Watch live: GOP senators present new infrastructure proposal Sasse rebuked by Nebraska Republican Party over impeachment vote MORE (R-Pa.), a fiscal hawk and member of the congressional oversight committee in charge of monitoring the Fed’s rescue efforts.
“I would just remind my colleagues there’s no such thing as a free lunch, and we have authorized several trillion dollars of government spending in a variety of ways.”
Powell, a fellow Republican, acknowledged that the U.S. must reckon with the long-term issues of its more than $20 trillion debt once the economy improves. But he warned lawmakers against losing focus on the immediate crises facing the economy even after several rounds of successful aid.
“Those concerns are always going to be there, but I wouldn’t prioritize them at a time like this,” Powell said, adding that the spending “is giving us a better economy going forward, which will really help service the debt.”
Democrats are broadly supportive of another fiscal rescue plan focused on support for cash-strapped state and local governments bled dry by the pandemic and extending a $600 weekly increase to unemployment benefits that is set to expire July 31.
“We’re only a few weeks out from that help just running out. Some people in Congress want to let that help expire. They’re saying, ‘Mission accomplished,’ ” said Sen. Elizabeth WarrenElizabeth WarrenPoll: Harris, Michelle Obama lead for 2024 if Biden doesn't run Biden eyes new path for Fed despite Powell pick Equilibrium/Sustainability — Presented by Southern Company — Storms a growing danger for East Coast MORE (D-Mass.).
“Senate Republicans are eager to let this help expire when we still have more than 20 million people out of work.”
While Powell was careful not to directly endorse any specific fiscal proposal, he repeatedly praised Congress for its fiscal response so far and largely agreed with concerns about the looming expiration of enhanced unemployment benefits.
Powell said the pandemic’s devastating impact on dining, travel, hospitality and entertainment-dependent businesses would likely keep millions who depend on those industries unemployed.
“There’s going to be a lot of people going back to work in the coming months, but there are going to be a lot of people who can’t,” Powell said. “Some form of support for those people going forward in my view is likely to be appropriate.”
The Fed chairman also voiced support for further aid to state and local governments, another point of contention between Republicans and Democrats, to prevent layoffs and cuts to essential services.
Governments across the U.S. have shed more than 1.5 million workers since March, according to the Pew Charitable Trusts, and face more grueling cuts as municipalities plan their 2021 budgets around falling tax revenue and record high unemployment claims.
“State and local governments are major employers and they provide essential services, and that’s certainly an area that’s worthy of your interest,” Powell said.