Fed pledges support for economic recovery, calls for more fiscal stimulus

By Hernan Martin

Washington, Sep 22 (efe-epa) – The chairman of the United States Federal Reserve on Tuesday pledged that his agency will provide continued coronavirus relief but also called on Congress to support the recovery with additional fiscal stimulus.

In an in-person appearance before a US House of Representatives Financial Services Committee hearing on oversight of the Treasury Department’s and Fed’s coronavirus pandemic response, Jerome Powell said economic conditions have steadily improved since the crisis began and pledged that the Fed will use the tools at its disposal “for as long as it takes” to sustain the recovery.

However, he reminded lawmakers that the Fed has lending powers but not spending powers and therefore is not authorized to grant money to particular beneficiaries.

“By serving as a backstop to key credit markets, our programs have significantly increased the extension of credit from private lenders. However, the facilities are only that – a backstop,” Powell said.

“They are designed to support the functioning of private markets, not to replace them. Moreover, these are lending, not spending powers. Many borrowers will benefit from these programs, as will the overall economy, but for others a loan that could be difficult to repay might not be the answer. In these cases, direct fiscal support may be needed,” he added.

Since approving a $2.2 trillion coronavirus relief bill in March, Congress has been unable to agree on a similar package that would restart federal jobless benefits that expired at the end of July and provide a second round of direct payments to Americans.

Democrats on Capitol Hill had been pushing for a whopping $3.5 trillion in new coronavirus relief, although they have lowered that demand to $2.2 trillion. President Donald Trump’s administration is urging GOP lawmakers to approve a $1.5 trillion deal.

During Tuesday’s hearing, Treasury Secretary Steven Mnuchin expressed his support for a new fiscal package and said the White House is eager for this to include a second round of direct payments.

“Economic re-openings, combined with the CARES Act (the first coronavirus stimulus package), have enabled a remarkable economic rebound, but some industries particularly hard hit by the pandemic require additional relief,” Mnuchin said.

Powell, for his part, said the recession has taken a particularly big toll on “those least able to bear the burden” and that the rise in joblessness has been particularly severe for “lower-wage workers, for women and African-Americans and Hispanics.”

“Economic activity has picked up from its depressed second-quarter level, when much of the economy was shut down to stem the spread of the virus. Many economic indicators show marked improvement,” he said. Even so, “both employment and overall economic activity … remain well below their pre-pandemic levels, and the path ahead continues to be highly uncertain.”

The Federal Reserve chairman credited the CARES Act – signed into law in March – for a marked improvement in household spending, the chief driver of the US economy, which has “recovered about three-fourths of its earlier decline.”

He pledged that the US central bank remains committed “to using our tools to do what we can, for as long as it takes, to ensure that the recovery will be as strong as possible, and to limit lasting damage to the economy.”

The Fed lowered its benchmark interest rate to a target range of between 0 percent and 0.25 percent at the start of the coronavirus crisis and also took other monetary steps that included injecting massive liquidity into financial markets and making large-scale purchases of Treasuries and agency mortgage-backed securities.

Powell said in a press conference last week that the Fed plans to hold its federal-funds rate near zero percent until 2023.

The Fed also recently announced a shift to an “average inflation targeting” approach, whereby the interest rate will be allowed move higher than the normal 2 percent target before the central bank raises interest rates.

In June, the Fed forecast a 6.5 percent contraction in real gross domestic product and a 9.3 percent unemployment rate at the end of 2020.

But the August employment report, which indicates a better-than-expected jobless rate of 8.4 percent, suggests that the economic recovery may be faster than originally anticipated.

Powell said around half of the 22 million payroll jobs that were lost in March and April due to the coronavirus-triggered lockdown orders have been regained.