Powell compared the pandemic’s initial shock to “a case of a natural disaster hitting a healthy economy.” But he cautioned that if the pace of the recovery persistently slows down, the markings of a more typical economic downturn could bubble to the surface “as weakness feeds on weakness,” according to his speech.
“Too little support would lead to a weak recovery, creating unnecessary hardship for households and businesses,” Powell said. “Over time, household insolvencies and business bankruptcies would rise, harming the productive capacity of the economy, and holding back wage growth. By contrast, the risks of overdoing it seem, for now, to be smaller. Even if policy actions ultimately prove to be greater than needed, they will not go to waste.”
By some measures, the economy is recovering faster than expected. The unemployment rate dropped to 7.9 percent last month, and Fed officials have upgraded their estimates for how low the unemployment rate could fall over the next few years.
But those gains have not been equally shared, and the coronavirus recession is the most unequal in modern U.S. history. Low-wage, minority workers, and Black women, Black men and mothers of school-age children are taking the longest time to find new jobs after the steep job losses earlier in the Spring, a Post analysis showed.
Meanwhile, it’s still unclear whether Congress and the White House will reach a deal on another coronavirus relief package, despite repeated urging from Powell and others that more direct aid will be needed to sustain the recovery and support households, businesses and local governments on the brink.
“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,” Powell said.