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Evictions, mortgage defaults may rise without fiscal aid: Powell

National Taxpayers Union Senior Fellow Mattie Duppler joins Yahoo Finance’s Zack Guzman to discuss the stimulus outlook amid COVID-19.

Video Transcript

ZACK GUZMAN: Mattie, it's good to be chatting with you again. I guess just to continue that conversation here on the idea that more needs to be done. In his third day of testimony, we just heard from Fed Chair Jerome Powell talking about how households might be starting to see some risks here, or at least down the road, when we think about maybe defaults, and paying mortgages, and questions around that, the longer we get further into this recovery without additional stimulus measures. So what's your take on how some of those fears might be looming?

MATTIE DUPPLER: Well, Zack, I've been arguing for a while now that September is a very tricky month for policymakers. Now, over the summer, there is no doubt that we've seen more resiliency in the economy than was expected. Fed Chair Jay Powell admitted that in his testimony this week, that the summer months certainly were better economically than expected, but not necessarily better from a public health standpoint.

And remember, that's the whole reason we are in the economic circumstances we're facing today, it's because we're in the middle of a global pandemic, and some people seem to have forgotten this. You had Stephen Moore, an unofficial advisor to the president, today-- or excuse me-- this week say the quiet part out loud, that maybe fiscal stimulus isn't needed because it wouldn't go into effect until past the election. The politics of the moment are quite different than the reality that most Americans are facing.

You heard Brian Cheung talk about-- with the Boston Fed chair about the Paycheck Protection Program. The problem with the PPP is the SBA authority ran out to continue lending under that program and needs Congress to re-up that authorization. So there's a lot of pressure right now.

We've heard from the Federal Reserve talking about what it's been able to do on monetary policy. But you know, the comments coming from Fed officials really are extraordinary, talking about how they're almost at the end of their tool box and Congress needs to step in here, things like continuing PPP lending authority, but other elements as well. You know, the CARES Act increased support for airlines, that runs out at the end of the month, so those airline payrolls are certainly going to be under pressure.

And then, of course, those extended unemployment benefits. There's a lot of debate about where those should be, considering that the economy has recovered somewhat, but certainly we are not out of the hole yet. And as we wade into these winter months, the public health circumstances could get worse, making the economic circumstances that much more dire.

ZACK GUZMAN: Yeah, not just over the next couple of months, but, too, I mean, when you look into next year and GDP forecasts, Wells Fargo is out with a new report looking at two scenarios here in whether we do see a return to some of those unemployment benefits or if they roll off entirely and what that could mean for growth moving forward. I mean, there is a case to be made maybe that the CARES Act and the support here on unemployment benefits maybe did go beyond some people's wages when you think about that.

But I mean, it was only for a few months, and now those benefits rolled off since the end of July. So I mean, when you think about weighing what could happen here in the back half of 2020 and the pain you're talking about for those who have lost their jobs, I mean, does it seem like it's-- you're talking about hundreds of dollars a week, I mean, it doesn't seem to me to be that large in the grand scheme of things.

MATTIE DUPPLER: Yeah. Yeah, Zack, I agree with you entirely. I mean, the conversation at the beginning of this spring when we're talking about paying a server who's out of a job a couple hundred extra bucks a week seems tone deaf to me, and particularly now. Certainly, we should being careful, given the amount of debt that the federal government is continuing to run up, about what our fiscal policy is.

I'm not arguing that we shouldn't continue to make decisions based on prudent policy making. But the argument that, you know, that is what should stall the entire conversation on Capitol Hill, I think, is really, really depressing, to say the least, given that political leaders actually aren't that far apart Republicans and Democrats have been talking about extending UI in some shape or form. That's why the president came out with an executive order that does do that, even though the mechanics of that are very difficult.

Some sort form of state aid to those state and local governments, both Republicans and Democrats have talked about how that's important. Of course, the top-line number is what the sticking point is, which I think is a little bit of a red herring for actually getting to negotiation and agreeing to something. And then, of course, what you do for businesses? I mean, the number of small business closures as we move through the next couple of months, that's the critical data here that I think people should keep their eye on.

Because if those businesses close, those workers don't get their jobs back. Right now we're still at a point where a lot of workers who are on temporary furlough think they're going back to work. If that-- if that starts to change, that's where we really start to see permanent scarring on the economy, and that becomes a lot harder to recover from, no matter what happens in November, no matter what the political makeup here is in Washington, DC.

ZACK GUZMAN: Yeah, and when you think about the unemployment rate and where the Fed sees that coming in at year-end, I mean, we saw that come down. We've just been pacing ahead of a lot of expectations in this recovery over the last few months, even after we saw the roll-off of these benefits that we're talking about. But when you think about what the expectations are for this upcoming jobs report, September jobs report, it could be the third straight month-- if you believe the surveys right now, a third straight month that we've seen that headline number come down, which would seem to support the idea that the steam is coming out of this recovery.

And 7% unemployment at the end of this year and next year seems rather high compared to where we were before this pandemic hit. So when you piece all of those things together, I mean, the expectations for a slower and longer drawn-out recovery does not seem to be one that either party would stand to support, regardless of who comes into power in November.

MATTIE DUPPLER: Yeah, Zack, you really have got to keep a careful eye on this employment data, because each side is using it to craft a narrative that may or may not be the case. But I think the things that your viewers need to focus on, there's three things here. One is that permanent job loss number, that monthly data that we get, that we're going to get next Friday. That'll tell us how many people are moving from temporary unemployment, people were furloughed are thinking they're going back to their job, to permanent unemployment. That number has continued to rise over the summer. I'm really worried about that number continuing to go up.

But secondly, this whole-- this whole idea that wages are rising, wages are rising because we had to lay off the least-paid workers the most when the crisis started. So that means those people can start to come back online. They're starting to get more hours. They're starting to get paid more. But that doesn't mean we're back where we were in January.

And lastly, just looking at the labor landscape overall, yes, job openings and labor turnover looks pretty good, but it does not look as good as we looked in February. I don't think we're going to get back to where we were at the beginning of the year.

But what we need is support to bridge that gap to make sure we're closing all of the uncertainty loops that, in particular, small businesses are facing right now if they don't have PPP, now that some states have a really uneven experience with coronavirus infection rates, and now that we're looking at a political uncertainty as we wade into November. I think having some kind of act of Congress that gives a little more certainty to the employers in this country could go a really long way.