A day after congressional Democrats revealed an additional $3 trillion economic relief plan for an ailing economy, Federal Reserve Chairman Jerome Powell crystallized the choice before legislators: more, expensive fiscal support or prolonged economic damage.
In a speech to the Peterson Economic institute, Powell noted that the current downturn is “unprecedented” in its “scope and speed” and “worse than any recession since World War II.”
It “has caused a level of pain that is hard to capture in words, as lives are upended amid greater uncertainty about the future,” said Powell, noting that almost 40% of Americans working in February and earning less than $40,000 a year lost their jobs in March. At last count, 33 million Americans have filed for unemployment benefits since late March, wiping out more than a decade of job gains, and the U.S. unemployment rate for April soared to 14.7%.
The fiscal response to these losses, providing roughly $2.9 trillion to households, businesses, health care providers and state and local governments is equivalent to about 14% of GDP. It has been “the fastest and largest response for any post-War downturn,” said Powell. But it may not be enough.
“Deeper and longer recessions can leave behind lasting damage to the productive capacity of the economy,” Powell said. Long stretches of unemployment can damage or end careers, leaving families in deep debt; the loss of thousands of small and medium-size businesses can destroy a life’s work and family legacy and, along with reduced business investment and expansion, limit the scope of the economic recovery, explained Powell.
“We ought to do what we can to avoid these outcomes, and that may require additional policy measures,” said Powell.