Fed Chief Warns More Spending Needed To Keep Recovery Rolling

With another coronavirus relief package stalled in Congress, Federal Reserve Chair Jerome Powell is warning of “tragic” consequences if the federal government fails to provide more support for struggling businesses and households.

In a speech to members of the National Association for Business Economics, Powell said the biggest danger right now for the federal government is doing too little, not too much.

In particular, the debt that would be incurred from another round of stimulus spending would be money well spent if it were to prevent the economy from sliding into a pattern of anemic growth after an initial burst of activity last spring.

“A prolonged slowing in the pace of improvement over time could trigger typical recessionary dynamics, as weakness feeds on weakness,” Powell said. “A long period of unnecessarily slow progress could continue to exacerbate existing disparities in our economy. That would be tragic, especially in light of our country’s progress on these issues in the years leading up to the pandemic.”

Powell’s remarks come as the White House and House Democrats struggle to reach a compromise over competing proposals, with the House plan calling for $2.2 trillion in additional spending, compared to $1.6 trillion put forth by the Trump Administration.

Powell did not endorse any specific spending plan, though, confining his remarks to a more general admonition that the greater risk at the moment is not spending enough to keep the economic recovery rolling.

“The expansion is still far from complete,” Powell said. “Too little support would lead to a weak recovery, creating unnecessary hardship for households and businesses. Over time, household insolvencies and business bankruptcies would rise, harming the productive capacity of the economy, and holding back wage growth. By contrast, the risks of overdoing it seem, for now, to be smaller. Even if policy actions ultimately prove to be greater than needed, they will not go to waste.”