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Powell Urges Congress Not to Remove Fiscal Support Too Fast

Matthew Boesler

(Bloomberg) -- Federal Reserve Chair Jerome Powell urged Congress not to pull back too quickly on federal relief for households and small businesses amid increasing debate over whether to extend temporary programs that were put in place to shield them from the pandemic.

“I would think that it would be a concern if Congress were to pull back from the support that it’s providing too quickly,” Powell said Wednesday while answering questions before the House Financial Services Committee.

“I do think it would be appropriate to think about continuing support for people who are newly out of work and for smaller businesses who are struggling,” Powell said. “The economy is just now beginning to recover. It’s a critical phase and I think that support would be well-placed at this time.”

Powell was answering a question from Representative Maxine Waters, the California Democrat who chairs the committee. Representative Patrick McHenry, the North Carolina Republican who is the party’s ranking member on the committee, quickly followed up by warning the Fed chair to stay in his lane.

“Monetary and fiscal policy are two very different things. I would urge you and the leadership of the Fed to stick to monetary policy,” McHenry said.

“Your words of encouragement that we have our responsibilities on the fiscal side of the house I think are well-noted, and what you are telling us about the employment marketplace on a going-forward basis, I think, is informative for our policy-making,” he said. “And so, thank you for your statements there, that additional congressional action is required.”

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Lawmakers are debating whether to renew the fiscal-aid measures they’ve approved for the millions of Americans who lost their jobs in recent months as businesses closed to stem the spread of the virus. The expanded unemployment insurance payments of $600 a week that formed part of the relief package are set to expire on July 31.

So far, Congress has authorized about $3 trillion of aid. The White House and Democratic lawmakers are pushing for another package, while many Republican lawmakers maintain Congress should hold off to assess the economic impact of the measures that have already been put in place.

The U.S. unemployment rate fell to 13.3% in May after surging to 14.7% in April, a development Republican lawmakers have pointed to in making their case.

“We should see strong job creation between now and the end of July, and that may mean that the unemployment rate comes down,” Powell said Wednesday while answering a question about whether Congress should let the enhanced unemployment benefits expire.

Powell said the Fed has heard from employers that some workers are reluctant to return to their jobs because they’re earning more with the added $600 payments than they made at work. But others -- like those in the service sector in regular contact with customers, such as in hair or nail salons -- are hesitant to go back for health reasons, he said.

Still others, like those who were previously employed in the leisure and hospitality sector, may not have jobs to return to any time soon, he added.

“I would just say it probably is going to be important that it be continued in some form,” Powell said of the expanded unemployment insurance payments. “You wouldn’t want to go all the way to zero on that.”

Powell was also asked about signs of resilience in the U.S. economy. Data on retail sales this week showed a record surge in May as businesses started to reopen. That followed the stronger than expected report on job growth last month.

“It’s evidence there is a lot of spending power, and we are starting to see that, in the spending data yesterday,” Powell said. “That bodes well.”

(Updates with positions on a new package in eighth paragraph.)

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