Jerome Powell Fed chairman (Photo: Bloomberg)

Although the economic recovery “has progressed more quickly than generally expected … the outlook remains highly uncertain,” said Fed Chairman Jerome Powell, in a speech to the National Association for Business Economics, on Tuesday.

“The expansion is still far from complete,” said Powell, who argued in favor of more policy intervention by monetary and fiscal authorities rather than less. 

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.

“Too little support would lead to a weak recovery, creating unnecessary hardship for households and businesses” said Powell. In contrast, “the risks of overdoing it seem, for now, to be smaller.”

Additional aid, even if it ultimately proves unnecessary “will not go to waste,” said Powell. “The recovery will be stronger and move faster if monetary policy and fiscal policy continue to work side by side to provide support to the economy until it is clearly out of the woods.”

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The U.S. economy is clearly not out of the woods yet, according to Powell. The pace of the economic recovery has slowed since May and June, permanent job losses are rising, and the unemployment rate, though officially down to 7.9%, is closer to 11% after accounting for “mischaracterizations of job status” and the decline in labor force participation, Powell said.

He also noted the widening wealth gap due to the disproportionate impact of the pandemic on communities of color and women, many overwhelmed by child care duties due to quarantines and distance learning.

The pandemic remains a major risk for the economic recovery and it needs to be managed by following the advice of medical experts — wearing masks and social distancing, Powell said.  “COVID-19 cases might again rise to levels that more significantly limit economic activity, not to mention the tragic effects on lives and well-being.”

Another risk, according to Powell: a prolonged slowing of the pace of the recovery, which over time “could trigger typical recession dynamics as weakness feeds on weakness” and “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.”

To date, close to 7.5 million people in the U.S. have been infected by the coronavirus and over 210,000 have died, with the death rate for Blacks and Latinos about twice that of whites. The U.S., with slightly more than 4% of the world’s population, accounts for one-fifth of COVID-19 deaths.

Despite his very cautious outlook, Powell said in a Q&A that followed his speech that he is “very optimistic” that the U.S. labor market can get back to where it stood in February, when wages were rising fastest for the lowest paid workers and the participation rate was 63.4%. (It was 61.2% in September.) “It’s important we stay at it.”

The Fed has done just that, often expanding or adjusting its multiple lending facilities to support financial markets, small businesses, municipal governments and nonprofits. Congress has provided about $4 trillion in emergency relief, including close to $500 billion to finance the Fed’s lending facilities, which can be leveraged about 10 times that, but it hasn’t passed another relief bill since late March.

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