Powell joins the battle over fiscal spending
Illustration: Eniola Odetunde/Axios
After the House of Representatives released a proposed $3 trillion relief bill on Tuesday, Fed chair Jerome Powell weighed in, backing calls for Congress to do more to battle the economic impact of the coronavirus pandemic.
Why it matters: Expectations for the pandemic-fueled recession are morphing from a short-term downturn to a potentially yearslong slog and economists are urging policymakers to adjust government spending accordingly.
- Powell's comments Wednesday made him the latest and perhaps most influential voice in a chorus advocating more fiscal spending.
Driving the news: In pre-written remarks, Powell detailed the harms of "deeper and longer" recessions, warning that "the recovery may take some time to gather momentum and time can turn liquidity problems into solvency problems."
- "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 during a webcast with the Peterson Institute for International Economics.
Between the lines: "Fed officials are unanimous on this — they are all in on, 'Congress has to do more,'" Claudia Sahm, a former top Fed economist and now director of macroeconomic policy at the Washington Center for Equitable Growth, said during a separate online event.
What's happening: Recent economic studies and business developments are starting to back Powell's worries that the Fed and Congress will need to provide assistance to the U.S. economy for some time.
- In addition to the record high unemployment rate, thousands of business closures and wave of bankruptcies, new academic research estimates that 42% of recent layoffs will result in permanent job loss.
Yes, but: "Right now in the White House, we’re in wait-and-see mode," White House economic adviser Kevin Hassett said during a briefing with the Brookings Institution Tuesday.
- Hassett argued that some of the big-ticket items in the House's so-called Heroes Act — which includes nearly $1 trillion for states and municipal governments, a second round of $1,200 direct payments for individuals, a $175 billion housing assistance fund, a 15% increase in food stamps and more — could be "putting the cart before the horse."
- Republican senators also point to the annual U.S. budget deficit that has already topped $4 trillion as a reason for patience.
Yes, but, but: "We are in an election year and have had bipartisan support for lots of spending already," Kevin Barry, CIO of investment adviser CAPTRUST, tells Axios.
- "Do I think there will be significant political interest in additional support? The answer is yes."