WASHINGTON – Federal Reserve Chair Jerome Powell warned Wednesday that the viral epidemic is endangering the modest economic recovery that followed a collapse in hiring and spending this spring. As a result, he said, the Fed plans to keep interest rates pinned near zero well into the future.
That faltering economy, pressured by a resurgence of the virus, has heightened the need for Congress to continue providing significant financial aid, Powell said. Members of the House and Senate are negotiating a new package but are nowhere near agreement. Senate Republicans and the White House are proposing a plan that would provide less help for unemployed Americans than they are now receiving.
Speaking at a virtual news conference after a two-day Fed meeting ended, Powell said the economy had rebounded after nearly all states lifted their broad business shutdown measures in May. But since then, he noted, as new confirmed cases have soared, measures of spending and hiring have slipped or plateaued at low levels.
“Now that the cases have spiked again, the early data ... suggest that there is a slower pace of growth at least for now," he said. "We don’t know how deep or for how long it will be.”
The economic stumble, amid the worsened viral outbreak, underscores the connection between the virus and the economy's ability to sustain any recovery, the chairman said. This point was also highlighted in the Fed's statement, which added a new sentence: “The path of the economy will depend significantly on the course of the virus."
That observation was an acknowledgement that uncertainty about when the health crisis might be solved has complicated the Fed’s ability to set interest rate policy.
It’s also a point that Powell has made, in one way or another, for months as most states have succeeded only fitfully in controlling the virus and the ability of businesses to stay open. And it suggested that Powell and the Fed envision a prolonged recovery that will depend in large part on how well the U.S. can contain the pandemic.
“A full recovery is unlikely until people are confident that it is safe to re-engage in a broad range of activities," Powell said.