Powell: Recovery will be weak without adequate support

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Economic recovery will need fiscal support, Federal Reserve Board Chair Jerome Powell said Tuesday, and the government shouldn't worry about offering too much assistance.

“Too little support would lead to a weak recovery, creating unnecessary hardship for households and businesses," Powell told the National Association for Business Economics annual meeting, according to prepared text released by the Fed. Not enough stimulus would lead to "household insolvencies and business bankruptcies," he said, "harming the productive capacity of the economy, and holding back wage growth."

But if the government does too much, and "policy actions ultimately prove to be greater than needed, they will not go to waste. 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."

"It is up to policy makers to get us through this next stage of the recovery," said Federal Reserve Board Chair Jerome Powell.

Addressing the Federal Open Market Committee’s framework for conducting monetary policy, Powell said, “The recent changes to our consensus statement reflect our evolving understanding of several important developments. The new consensus statement acknowledges these developments and makes appropriate changes in our monetary policy framework to position the FOMC to best achieve its statutory goals.”

The Fed “expects” the new framework will “support our efforts in pursuit of a strong economic recovery.”

According to Ed Moya, senior market analyst at OANDA , Powell’s comments continue to “pile on the pressure” for Congress to deliver additional stimulus and highlight the pace of the recovery is “slowing and could trigger typical recessionary dynamics.”

“Powell pointed out that the more realistic unemployment rate is closer to 11% and that the risks of overdoing it on stimulus is smaller than doing too little,” he said. “His remarks did not reveal anything new, the recovery will weaken without fiscal aid and that the outlook is uncertain. Traders looking for any dovish surprises did not get any, especially after he stated negative rates are still not on the Fed's radar.”

Powell also said it is “up to policy makers to get us through” to the next stage of the recovery. Should the assistance not come, “a prolonged slowing in the pace of improvement over time could trigger typical recessionary dynamics, as weakness feeds on weakness,” Powell said. “A long period of unnecessarily slow progress could continue to exacerbate existing disparities in our economy. That would be tragic, especially in light of our country’s progress on these issues in the years leading up to the pandemic.”

A second wave is a downside risk, should the number of infected rise “to levels that more significantly limit economic activity," he said. “Managing this risk as the expansion continues will require following medical experts’ guidance, including using masks and social-distancing measures.”

International trade
The international trade deficit widened to $67.1 billion in August from a revised $63.4 billion in July, first reported as a $63.6 billion shortfall, the Commerce Department said Tuesday. The deficit was the largest since August 2006.

Economists polled by IFR Markets projected a $66.2 billion shortfall.

Exports in the month were up 2.2% to $171.9 billion, while imports climbed 3.2%, to $239 billion in the month.

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