Yesterday, Jerome Powell spoke at a virtual conference held by the National Association for Business Economics. While he acknowledged the US recovery had exceeded expectations he also warned of a highly uncertain outlook due to the virus: “There is a risk that the rapid initial gains from reopening may transition to a longer than expected slog back to full recovery as some segments struggle with the pandemic's continued fallout. The pace of economic improvement has moderated since the outsize gains of May and June, as is evident in employment, income, and spending data. The increase in permanent job loss, as well as recent layoffs, are also notable.”
Powell warned of tragic consequences from a lack of further fiscal support noting: “A long period of unnecessarily slow progress could continue to exacerbate existing disparities in our economy.” At this early stage in the recovery he argued the “risks of policy intervention are still asymmetric” with the risks of not doing enough outweighing the risk of overdoing it. He opined, “Too little support would lead to a weak recovery, creating unnecessary hardship for households and businesses.” Hence, he reiterated a call for further fiscal support emphasising: “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”.
However, any hopes of the Republicans and Democrats agreeing a stimulus deal ahead of the election were abruptly put on hold yesterday after Trump tweeted: “I have instructed my representatives to stop negotiating until after the election when, immediately after I win, we will pass a major Stimulus Bill that focuses on hardworking Americans and Small Business”. Trump did then later appear to backtrack tweeting a willingness to sign off certain separate measures such as payments to individuals: “If I am sent a Stand Alone Bill for Stimulus Checks ($1,200), they will go out to our great people IMMEDIATELY. I am ready to sign right now. Are you listening Nancy?” He also indicated a willingness to sign off on airline support measures and support for small businesses. However, the Democrats have been reluctant to approve individual measures although Nancy Pelosi had shown support for a standalone bill for the airline workers if a broader agreement could not be reached. Nancy Pelosi reacted to Trump calling off negotiations stating: “Clearly, the White House is in complete disarray,” and “Sadly, they are rejecting the urgent warnings of Fed Chairman Powell today”. Inevitably, delays to further fiscal support risks damaging the economic recovery. However, with Biden leading in the polls the possibility of a larger Democrat support package remains on the cards.