Fed chair warns of economic tragedy if United States can't control COVID-19

Pelosi pushes for coronavirus relief: 'Robust action is immediately needed'

Federal Reserve Chairman Jerome Powell warned of potentially tragic economic consequences that could result if Congress and the White House don't provide additional support to households and businesses disrupted by the coronavirus pandemic.

"Too little support would lead to a weak recovery, creating unnecessary hardship for households and businesses", Powell said in remarks delivered online to the National Association for Business Economics.

"The risks of policy intervention are still asymmetric", Powell said.

Federal Reserve officials expressed concern at their most-recent meeting that the USA economy recovery could falter if Congress failed to approve another round of pandemic relief.

"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. 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".

"The economy is recovering, but even if we don't have an immediate double-dip recession, if it's just a very, very slow recovery, that itself could be problematic", said Kathy Bostjancic, chief U.S. financial economist with Oxford Economics.

"There is a risk that the rapid initial gains from reopening may transition to a longer than expected slog back to full recovery", he added.

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But if the government does too much, and "policy actions ultimately prove to be greater than needed, they will not go to waste". Republicans' opposition to a larger relief package has kept discussions with Democrats at a stalemate in Congress since aid to jobless Americans and small businesses expired in July and August.

"The U.S. federal budget is on an unsustainable path, has been for some time", Mr. Powell said. However, some Senate Republicans previously signaled that they are not willing to support any package that costs over 1.5 trillion dollars to salvage the economy reeling from the pandemic.

While the unemployment rate has fallen from almost 15% in April to just under 8% now, Powell explained that a "broader measure that better captures current labor market conditions-by adjusting for mistaken characterizations of job status, and for the decline in labor force participation since February-is running around 11 percent", signaling the "need for further support".

Major downside risks to the US economy include fiscal policy inaction, a second wave of COVID-19 and an increasing number of bankruptcies, according to a survey of 52 economists released by the NABE on Monday. They next meet November 4-5, a day after the USA presidential election.

The growth in new Covid-19 cases is again accelerating in parts of the United States and Europe, raising the prospect of new restrictions on commerce even as whole industries and millions of households are still reeling from those imposed in the spring during the first viral wave, and local governments struggle to make up for lost tax revenue.

When panic struck financial markets in March, Fed officials lowered the target for their benchmark rate to a range of zero to 0.25 per cent, where they say it will likely remain for years.

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