Federal Reserve chair Jay Powell, following a hold-in-place policy meeting Wednesday, stayed away from any happy talk about progress against the virus and unemployment, saying it will be quite a while before low jobless rates return.
Referring to the “tail” outside the bulk of the reemployment distribution curve, Powell told reporters in the post-FOMC news conference it will be a long time until full employment is regained.
“I think the picture is you have the lockdown and then you have the reopening, but there’s probably going to be a long tail where a large number of people are struggling to get back to work,” Powell said. “Those heavily affected areas of the economy are going to be challenged really to employ the millions of people who are now out of work.”
Answering another question, Powell said, “There’s clearly a risk we’re going to see a slowdown in the rate of growth, in economic activity, and in hiring. It might still be at a robust level.”
Yet, he added, “Honestly we will not know until we start to see more data come in.”
Powell acknowledged that the central bank’s virus response facilities have not been used to the extent expected, at least not yet. He stressed the importance of leaving them in place and fully backed up by the Treasury Department in case they are needed. Meanwhile, the fact that they exist serve to sustain market functioning and credit flows.
He said the initial quick and comprehensive action by Congress early in the pandemic is what is sustaining the economy now and future needs will have to be met by more action.
“It’s really helping,” he said of the Paycheck Protection Program and enhanced unemployment benefits. “It’s going to stand up very well to scrutiny down the years. Congress’s very fast and very open-handed response I think has really helped. And I think – I know – as I said very likely there will be more needed from all of us.”
He said he sees “Congress negotiating now over a new package. I think that’s a good thing”.
President Trump, addressing reporters at the ropeline before leaving for Texas appearances Wednesday, said the White House “doesn’t care” about negotiating the terms of a new Phase 4 virus response package given what he said is the House Democrats’ insistence on its own Heroes Act terms, other than getting a fast extension to the federal evictions moratorium. That suggested a long period of negotiation, perhaps going beyond the August 8 date the Senate has set for the beginning of its August recess.
In its policy statement in which, as expected, the Federal Open Market Committee made no changes, the language included the statement that, “The path of the economy will depend significantly on the course of the virus.”
Powell elaborated in the news conference. “You know I think we feel it might be the most central fact or the most central driver of the path of the economy right now is the virus. And you’re seeing that again.”
He continued, “You saw that during the lockdown. When we got cases way down, you saw the economy reopening and you saw spending go up and hiring go up. Now that the cases have spiked again – again, the early data, the high frequency data suggests that there’s a slower pace of growth at least for now.”
With the path of the virus uncertain, while US deaths are topping 1,000 a day, “We don’t know how deep or how long that will be”.
So, he said, “it’s such an important sentence, we just decided that it needed to be in our post meeting statement. It’s so fundamental. I think we can’t say it enough. It’s really important.”
The economy’s recovery, he said, depends on how many people wear masks and socially distance.
“Those whose jobs could be done without exposure to lots of people in tight groups, they should be able to go back to work during that phase fairly quickly,” he said. “But that would depend on being able to keep the virus under control, which will depend on wearing masks and other social distancing measures. So that’s where we are. It’s such an important factor.”
The Fed, he said, is not concentrating on bright-side hopes, but downside possibilities.
“I have to say our job is not to plan for the upside case. The upside case, we’ve got that covered.” The job of the Fed “is to plan for the full range of things that could happen.” That means, “We’re going to continue to assume that our facilities are needed, that our policies are needed, and that the public needs the support that we’re giving the public until shown otherwise.”
He concluded, “There’s great uncertainty around the development of therapeutics and vaccines.”