Federal Reserve Chairman Jay Powell talked via webcast with the Peterson Institute for International Economics on May 13, updating the state of the economy today.
His focus was on the burden which has fallen “most heavily” on those who are least able to bear it.
“Since the pandemic arrived in force just two months ago, more than 20 million people have lost their jobs,” Powell said in prepared remarks made available by the Fed. “This reversal of economic fortune has caused a level of pain that is hard to capture in words, as lives are upended amid great uncertainty about the future.”
The speech came a day before the Fed released its annual report on economic conditions, but with a new survey that looked into conditions at the end of March. Powell mentioned in his remarks the headline takeaway from the supplemental survey – that 39 percent of people working in February with a household income of $40,000 or less reported a job loss in March. And 6 percent more reported reduced hours or unpaid leave.
Overall, the report found 19 percent of adults reported a job loss or reduced working hours in March. Nine in 10 people who lost a job said that their employer indicated that they would return to their job at some point.
“In general, however, people were not told specifically when to expect to return to work,” the report found.
In his speech, Powell said the downturn today is unique from others before it.
“Earlier in the post-World War II period, recessions were sometimes linked to a cycle of high inflation followed by Fed tightening. The lower inflation levels of recent decades have brought a series of long expansions, often accompanied by the buildup of imbalances over time — asset prices that reached unsupportable levels, for instance, or important sectors of the economy, such as housing, that boomed unsustainably,” he stated. “The current downturn is unique in that it is attributable to the virus and the steps taken to limit its fallout. This time, high inflation was not a problem. There was no economy-threatening bubble to pop and no unsustainable boom to bust. The virus is the cause, not the usual suspects — something worth keeping in mind as we respond.”
Powell went into details of the government response so far, citing the $2.9 trillion which Congress has appropriated in relief, along with the Fed efforts to cut rates and take additional measures, which he grouped into four areas.
“First, outright purchases of Treasuries and agency mortgage-backed securities to restore functionality in these critical markets,” he stated. “Second, liquidity and funding measures, including discount window measures, expanded swap lines with foreign central banks, and several facilities with Treasury backing to support smooth functioning in money markets. Third, with additional backing from the Treasury, facilities to more directly support the flow of credit to households, businesses, and state and local governments. And fourth, temporary regulatory adjustments to encourage and allow banks to expand their balance sheets to support their household and business customers.
“The Fed takes actions such as these only in extraordinary circumstances, like those we face today. When this crisis is behind us, we will put these emergency tools away.”
Powell said that although the response has been timely and large, it might not be finished. Because the answers to questions about the virus, outbreaks and consumer confidence aren’t know, policies might need to address “a range of possible outcomes.”
Deeper and longer recessions can leave lasting damage to the economy’s productive capacity, Powell said, with insolvencies weighing on growth and long unemployment stretches damaging or ending workers’ careers.
“The loss of thousands of small- and medium-sized businesses across the country would destroy the life’s work and family legacy of many business and community leaders and limit the strength of the recovery when it comes,” he stated. “We ought to do what we can to avoid these outcomes, and that may require additional policy measures.”
The Fed will continue to use its tools until the crisis passes and the recovery is well under way, he said, noting the recover make take some time to gain momentum, and liquidity problems can turn into insolvency the more time passes.
To prevent that, Powell suggested lawmakers need to step up their relief efforts.
“Additional fiscal support could be costly, but worth it if it helps avoid long-term economic damage and leaves us with a stronger recovery,” he stated. “This tradeoff is one for our elected representatives, who wield powers of taxation and spending.”