WASHINGTON — Jerome H. Powell, chairman of the Federal Reserve, told lawmakers on Tuesday that the economy’s nascent rebound was likely to take a long time to reach all corners of the job market — and already-disadvantaged groups were likely to suffer the most if the downturn drags on.
While some parts of the economy are seeing a modest rebound, “levels of output and employment remain far below their pre-pandemic levels, and significant uncertainty remains about the timing and strength of the recovery,” Powell told the Senate Banking Committee.
Powell suggested repeatedly that while it was good news that employers were beginning to hire workers, it could take a long time to get back to the strong labor market that prevailed before the coronavirus pandemic shut down large sectors of the economy, forcing tens of millions out of work. And he told lawmakers that more support from Congress and the Fed could be needed to get the economy back to full health.
“The shock that we received — the economy received — was the largest in living memory,” Powell said, noting that the fiscal and monetary policy response has also been the largest on record.
“The question we will all have to answer over time, is, is it enough?” he said. “I would say there’s a reasonable probability that more will be needed, both from you and from the Fed.”
The economic stakes are high. Powell stressed that the longer the pandemic goes on, the longer lasting the damage from the downturn could be, particularly for lower-income workers. Time out of the workforce could erode workers’ skills, he said.
“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,” Powell said. “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.”
Powell’s remarks, part of his two-day semiannual testimony before Senate and House lawmakers, come as communities across the United States continue to protest systemic racial inequality after George Floyd, a black man, was killed while in the custody of Minneapolis police in late May. Black Americans are often at a stark disadvantage in the labor market, and along with other minority groups, they have been hard-hit by pandemic-era job losses.
Powell told lawmakers that the central bank was focused on ensuring that the labor market, which had finally begun to benefit minority workers before the virus hit, has the support it needs to recover. If it does, low- and moderate-income people may be able to make gains again.
“What we learned during the last long expansion is that a tight job market is probably the best single thing that the Fed can do to support all low- to moderate-income communities,” which are disproportionately minority, he said. “Everything we are doing is to try to get the labor market back to where it was in February of 2020,” when the jobless rate was around 3.5 percent.
The Fed chairman told lawmakers that a full economic recovery was unlikely until the public was confident that the disease was contained, and he warned that an extended period of weakness could be damaging for some sectors, particularly small businesses, which face “acute risks” from the pandemic.
The Fed has already cut rates to near-zero, is buying large quantities of government-backed debt, and has unveiled a series of emergency lending programs to keep the economy and credit markets functioning. At the conclusion of its two-day policy meeting last week, Fed officials signaled that they expected to keep rates unchanged through 2022.
But even with its crisis powers, the central bank only has the ability to lend via credit facilities that help municipalities and businesses, not to spend. That means that direct support for households and smaller businesses in the form of grants has fallen to Congress.
Lawmakers have enacted substantial fiscal stimulus, with Congress approving direct payments to individuals and funding for small business loans. While the central bank noted in its Monetary Policy Report to Congress, released last week, that the fiscal policy response so far “constitutes the fastest and largest fiscal response to any postwar economic downturn,” it signaled that the path to recovery remains “extraordinarily uncertain,” and highlighted that state governments in particular are coming under stress.
Powell reiterated that while the Fed was “committed to using our full range of tools to support the economy in this challenging time,” its response to the crisis is only part of what’s needed.
Legislation can “provide direct help to people, businesses, and communities,” he said. “This direct support can make a critical difference not just in helping families and businesses in a time of need, but also in limiting long-lasting damage to our economy.”
More than 100 economists, including two former Fed chairs and three former White House economists, called on Congress to pass another coronavirus relief package before the end of the summer, warning that more needed to be done in order to support economic recovery during the pandemic.
The next legislation, the economists wrote on Tuesday, “should provide, at a minimum, continued support for the unemployed, new assistance to states and localities, investments in programs that preserve the employer-employee relationship, and additional aid to stabilize aggregate demand.”
Lawmakers, however, have shown varying degrees of enthusiasm for further action.
While House Democrats approved a $3 trillion stimulus law in May to further address the economic toll, Senate Republicans remain divided over what another coronavirus relief package should look like, with some voicing skepticism about whether another sweeping round of federal aid is needed as the economy slowly starts to reopen.