The U.S. economy needs all the help it can get in this recovery, but the Federal Reserve has expressed frustration at the inability of Capitol Hill and the White House to do more.
When Fed Chairman Jay Powell fields questions at the conclusion of the Federal Open Market Committee’s meeting on Wednesday, will he show signs of fatigue in asking for more fiscal support? Or will he push harder for more help?
Powell’s tone could offer clues into the Fed’s next steps.
“The Fed can’t generate demand,” ING’s James Knightley wrote September 12. “For that we will need to see additional fiscal stimulus, but that is looking only a remote possibility ahead of the November 3rd elections.”
getting a deal done “doesn’t look that good right now.” ” data-reactid=”24″ type=”text”>Last week, Senate Majority Leader Mitch McConnell said the possibility of getting a deal done “doesn’t look that good right now.”
bonus unemployment insurance appear to have helped Americans stay afloat during the COVID-19 crisis, but critical portions of the support have since expired.” data-reactid=”25″ type=”text”>Almost six months have lapsed with no follow-up to the $2 trillion Coronavirus Aid, Relief, and Economic Security Act. CARES Act provisions like bonus unemployment insurance appear to have helped Americans stay afloat during the COVID-19 crisis, but critical portions of the support have since expired.
elevated 8.4%.” data-reactid=”37″ type=”text”>The labor market began its recovery in May, but rising case counts in the late summer have slowed the rebound. As of August, the number of U.S. nonfarm payrolls remained 11.5 million jobs below pre-pandemic levels and the unemployment rate still at an elevated 8.4%.
backed up to near-zero interest rates and has no intention to dip into negative territory. The central bank has relied heavily on its armory of liquidity facilities to keep liquidity flowing in markets ranging from corporate debt to municipal bonds.” data-reactid=”38″ type=”text”>The Fed is already backed up to near-zero interest rates and has no intention to dip into negative territory. The central bank has relied heavily on its armory of liquidity facilities to keep liquidity flowing in markets ranging from corporate debt to municipal bonds.
Of course, the Fed has hinted it still has some tricks up its sleeve, such as more actively strategizing its asset purchases under quantitative easing. But Morgan Stanley wrote Sept. 15 that the Fed is playing a “waiting game” with a potential relief package.
“On the immediate horizon is the risk of no further support from Congress, something we expect Chair Powell to spend time on in the press conference,” said Morgan Stanley’s economics and global macro team.
last policy-setting meeting on July 29. Underscoring their concern over the lack of fiscal relief, the 16 officials emphasized the importance of more support. ” data-reactid=”42″ type=”text”>Nearly all members of the Federal Open Market Committee have made public remarks since the Fed’s last policy-setting meeting on July 29. Underscoring their concern over the lack of fiscal relief, the 16 officials emphasized the importance of more support.
Here’s what they said:
they’re the ones who are most vulnerable. And those are the ones who we really need to look out for both through Fed policy, which will be there to support the economy — but also through fiscal policy.” (NPR interview, September 4)” data-reactid=”44″ type=”text”>Fed Chairman Jerome Powell: “The people who worked in those service jobs, particularly the entry-level, lower paid workers, they’re the ones who are most vulnerable. And those are the ones who we really need to look out for both through Fed policy, which will be there to support the economy — but also through fiscal policy.” (NPR interview, September 4)
Peterson Institute, August 31)” data-reactid=”45″ type=”text”>Fed Vice Chairman Richard Clarida: “Fiscal policy is really an input to the way that we think about policy.” (Remarks at Peterson Institute, August 31)
Fed Governor Lael Brainard: “It is very important to many households and businesses to have continued fiscal support — just as it was important to them in the early phase of this crisis.” (Remarks at Brookings Institution, September 1)” data-reactid=”47″ type=”text”>Fed Governor Lael Brainard: “It is very important to many households and businesses to have continued fiscal support — just as it was important to them in the early phase of this crisis.” (Remarks at Brookings Institution, September 1)
Kansas Bankers Association, August 26)” data-reactid=”48″ type=”text”>Fed Governor Michelle Bowman: “Timely and supportive fiscal and monetary policy measures also have helped, but with the progress of the recovery still tentative, I expect that many businesses will continue to fight for survival in the months ahead, with the support of their lenders and communities. (Remarks at Kansas Bankers Association, August 26)
Marketplace interview, August 18)” data-reactid=”49″ type=”text”>Boston Fed President Eric Rosengren: “We’re still in a position where we could use significant fiscal policy until the pandemic’s under control.” (Marketplace interview, August 18)
Bretton Woods Committee, September 2)” data-reactid=”54″ type=”text”>New York Fed President John Williams: “Getting money into households’ pockets, allowing families to keep putting food on their tables, pay the rent, the [Paycheck Protection Program], and other efforts have been hugely helpful through the last several months to minimize some of the economic consequences of the pandemic.” (Remarks at Bretton Woods Committee, September 2)
Fox Business interview, August 28)” data-reactid=”55″ type=”text”>Philadelphia Fed President Patrick Harker: “It’s all hands on deck. I think it’s not just
Treasury Secretary Steven Mnuchin told CNBC on Monday that lawmakers should not allow fears over the size of the nation’s deficit or the Federal Reserve’s balance sheet to delay additional Covid-19 relief.
Mnuchin, who with White House chief of staff Mark Meadows has led the administration’s Covid-19 relief negotiations, said the economic crisis warrants extraordinary stimulus from Congress and the Fed.
“Now is not the time to worry about shrinking the deficit or shrinking the Fed balance sheet,” Mnuchin told CNBC’s “Squawk Box” from the White House. “There was a time when the Fed was shrinking the balance sheet and coming back to normal. The good news is that gave them a lot of room to increase the balance sheet, which they did.”
“And I think both the monetary policy working with fiscal policy and what we were able to get done in an unprecedented way with Congress is the reason the economy is doing better,” he added.
Mnuchin’s comments critiqued his fellow Republicans who argue that improving jobs data and strong housing figures relax the need for additional spending to combat the impact of the coronavirus.
Sen. Rand Paul, R-Ky., for example, voted against a GOP “skinny” stimulus plan last week and has repeatedly attacked his own party for what he views as prodigal spending.
“The majority of Republicans are now no different than socialist Democrats when it comes to debt,” Paul wrote on Twitter in July. “They simply don’t care about debt and are preparing to add at least another trillion dollars in debt this month, combined with the trillions from earlier this summer.”
The cumulative federal budget deficit for the first 11 months of fiscal year 2020 was $3 trillion, according to the Congressional Budget Office, a byproduct of intensified government spending to get the economy through the pandemic-associated shutdown.
Mnuchin, who argues that more stimulus is needed to help the U.S. economy, said Monday that “we are rebounding in a very, very significant way.”
Paul’s vote helped sink the Senate Majority Leader Mitch McConnell’s plan, which fell short of the 60 votes needed on a procedural step to move toward passage.
All Democrats present and Paul voted against the bill in a 52-47 vote. That legislation would have reimposed enhanced federal unemployment insurance at a rate of $300 per week, half of the $600 weekly payment that expired at the end of July. The Democrats said it didn’t go far enough.
Mnuchin struck a more compromising tone Monday and said he’s still willing to work with House Speaker Nancy Pelosi on a new deal.
“I think there’s many areas of this where is an agreement between the Democrats and the Republicans, and some of the areas we do have differences on the amounts,” he said. “But I will continue to work on this: I’ve told the speaker I’m available any time to negotiate.”
The Treasury Secretary said he expects the Problem Solvers Caucus to produce a stimulus proposal later Monday.