May 13, 2020 - Economy

Fed chair Powell warns of "lasting" economic damage without more stimulus

Screengrab of Federal Reserve Chair Jerome Powell issuing the Federal Open Market Committee statement on April 29, 2020

Screengrab of Powell's virtual news conference last month. Photo: Federal Reserve via Getty Images

Federal Reserve Chairman Jerome Powell said Congress may need to do more to prevent a worse economic downturn triggered by the coronavirus pandemic, in an interview with the Peterson Institute's Adam Posen on Wednesday.

Why it matters: Powell warned of dire economic consequences without additional stimulus. While the Fed has responded to the pandemic with the most aggressive policy actions in the central bank's history, it doesn't have the power to get money directly in the hands of Americans and businesses in the form of grants like Congress does.

The backdrop: The coronavirus has pushed the economy into a downturn not seen since the Great Depression, with a record number of Americans out of work.

  • Congress and the Fed have unleashed trillions of dollars in coronavirus aid to support the economy.
  • House Democrats proposed another $3 trillion in stimulus this week, but more spending is facing resistance from Republican members of Congress.

What they're saying: "Additional fiscal support could be costly, but worth it if it helps avoid long-term economic damage and leaves us with a stronger recovery," Powell said.

  • "It's not the time to prioritize" concerns about fiscal spending, Powell said.

Powell warned about the long-lasting damage a steep, prolonged downturn could have on the economy, including permanent scarring to the most vulnerable workers in the labor force.

  • In a Fed survey set to be released tomorrow, Powell said 40% of people making less than $40,000/year who were employed in February, lost their job in March.

Go deeper: Mnuchin says White House will decide on more coronavirus relief in "a few weeks"

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