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Powell, Former Fed Chiefs Make the Case for More Government Aid

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Bloomberg photo of Fed Chair Jerome Powell Fed Chairman Jerome Powell. (Photo: Christophe Morin / Bloomberg)

More than 100 economists, including former Federal Reserve chairs Ben Bernanke and Janet Yellen, have written the four top congressional leaders, urging Congress to pass another economic recovery package before most benefits from the CARES Act expire this summer.

The letter stresses the needs of lower income households — almost 40% of those earning less than $40,000 a year lost a job in March — and highlights the deeper economic and health crises suffered by minority communities compared to white communities. 

“Black Americans have consistently faced unemployment rates twice that of White Americans” and black, Latino and Native American households account for a greater share of COVID-19 deaths, according to the letter sent to Sens. Mitch McConnell, R-Ky., and Charles Schumer, D-N.Y., and to Representatives Nancy Pelosi, D-Calif., and Kevin McCarthy, R-Calif.

A recent analysis by the Brookings Institution, based on data from the Census and the Centers for Disease Control, found that the age-adjusted COVID-19 death rate for black Americans is 3.6 times that of whites and for the Hispanic/Latino population 2.5 times that of whites.

“Policymakers in Congress and the Federal Reserve responded to this crisis with unprecedented levels of economic support for those affected but more needs to be done,” the economists’ letter states.

It calls for a multifaceted economic relief bill that will provide continued support for the unemployed — the federal benefit of $600 a month is set to expire at the end of July — new assistance to state and local governments, investments in programs to preserve the employer-employee relationship and additional aid to stabilize aggregate demand.

Congress should not repeat the mistake it made during the Great Recession when “insufficiently bold policy policy responses … unnecessarily prolonged suffering and stunted economic growth,” the letter states.

Powell’s Testimony at the Senate Banking Committee

In his testimony before the Senate Banking Committee on Tuesday, Fed Chairman Jerome Powell, noted that during the current downturn “low-income households have experienced by far the sharpest drop in employment, while job losses of African Americans, Hispanics and women have been greater than that of other groups. If not contained and reversed, the downturn could further widen gaps in economic well-being that the long expansion had made some progress in closing.”

In the last jobs report, which showed a surprising drop in the unemployment rate to 13.3% overall, the jobless rate for African Americans actually rose, to 16.8%, while the rate for white Americans fell to 12.4% “Minorities are substantially overrepresented in the unemployed,” Powell said.

Powell noted that a “significant” number of people will not be returning to their old jobs and will need help to find employment. Referring to the pre-pandemic U.S. economy, he said, “It’s going to take some time to get all the way back to where we were.”

During the Q&A portion of the hearing, Powell agreed with Democratic lawmakers that more government support for unemployed workers, state and local governments, low-income renters and homeowners and minority-owned businesses would be helpful not only for those recipients but also for the broader economy. But he stressed, as he often does, that such aid is the province of Congress and not the Fed.

“There will be a lot of people going back to work in the coming months but a lot of people who can’t. … Some sort of support for those people is likely to be appropriate,” Powell said.

Asked about state and local governments, which have already laid off 1.5 million workers so far, some temporarily, Powell noted their employees account for 13% of the U.S. labor force and their layoffs and service cuts will be a drag on the U.S. economy, as they were in the aftermath of the 2008 financial crisis.

He suggested that Congress should be looking at what kind of support unemployed workers need and help them find “new paths.”

Congress has already provided $3 trillion — 14% of GDP — in response to the “largest shock in living memory”  but there is a “reasonable probability more will be needed from Congress and the Fed,” Powell said.

Asked whether having a national COVID-19 tracking system would have a positive effect on the economy, Powell said, “It absolutely would. Anything that enhances public confidence” about the safety of going places would help the economy, he said.

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