Powell pushes for stimulus as labor market recovery slows

Fed Chair Jerome Powell continues his calls for Congress to pass another round of stimulus. Yahoo Finance’s Brian Cheung speaks with Alexis Christoforous and Brian Sozzi.

Video Transcript

ALEXIS CHRISTOFOROUS: The Fed's Open Market Committee isn't scheduled to meet again until after the election. But today's jobs report and the president's positive COVID-19 test could be on Chair Jerome Powell's mind when he speaks next week. Our Fed correspondent Brian Cheung is here with us now. Brian, look, we know that Powell has been pushing Congress to approve another stimulus plan. Do you think that this jobs report, together with the news from the president, might bring some added urgency to it?

BRIAN CHEUNG: Well, I think if you look at what Ian Shepherdson over at Pantheon Macro has said, the summary really is that the momentum for this economic recovery is fading, which should, in theory, provide a little bit more push for those on Capitol Hill to provide that fiscal stimulus that, as you mentioned, Alexis, the Federal Reserve chairman has been pushing so hard on in previous weeks. When you look at the headline number, in addition to the fact that it missed estimates, it's just simply a slower pace of job gains relative to the previous months that we had seen at just 661,000 job gains in the month of September.

Now, I do want to note that this is kind of in line with what the Federal Reserve has already modeled in for the year. The unemployment rate falling to 7.9% does seem to track pretty closely with the Federal Reserve's expectation based off its September FOMC projections that we would end the year with an unemployment rate at 7.6%, not very far from where we are right now. It will be interesting to see where we are in those October, November, and December jobs reports.

Now, again, as I mentioned, because of that slower pace of recovery, though, you do wonder about what type of more permanent structural damage could be done to the US economy as a result of this long and prolonged recovery period that we have. Another big statistic that I think Federal Reserve officials will be dialed into is the number of permanent jobs losses, which we've already drilled into during this show, increasing by 345,000 to 3.8 million. That could definitely be something that continues to hold back this recovery in the months to come.

BRIAN SOZZI: Brian, next week, we'll hear from Fed Chief Jerome Powell. In light of this disappointing jobs report, is it more important for him to lay out what ammo the Fed has left to support markets and the economy?

BRIAN CHEUNG: Well, Tuesday morning, as you mentioned, around 10:30 or so, Jay Powell will be speaking at a business economics conference virtually, of course. And it could definitely be the case that Jerome Powell will emphasize that if this downturn ends up being longer or prolonged, that the Fed Reserve could still do more if it needed to. That was a clear message that he had delivered to markets in that FOMC press conference not so long ago.

Now, the Federal Reserve, it does kind of seem interesting, because it's already backed up to near-zero rates. It has quantitative easing. It's launched more than 10 liquidity facilities that backstop everything from a risky corporate debt to municipal bonds.

But the Federal Reserve has said it could still do other things. Keep in mind that it's had-- it launched forward guidance in that last September meeting, where it said it's going to commit to keeping rates near zero until it reaches maximum employment and inflation is moderately overshooting its 2% target. But the Fed could still do something like pin quantitative easing to that forward guidance, which it hasn't done so far. It could do something like commit to purchasing x amount of mortgage-backed securities or longer-term dated US debt and pin it to that forward guidance.

It can also do a number of other things that would be more dramatic if it needed to, things like yield curve control, which the Fed still leaves on the table, a policy that would involve saying we're going to buy x amount of 10-year bonds, for example, probably less than that, maybe three or five-year bonds, until the yields on those securities are below a certain level, which would depress medium-term interest rates. That's something that the Fed Reserve could do as well. We don't know the subject matter of Jerome Powell's speech next Tuesday. But I think that with this jobs report, it could provide a little bit more onus on Jerome Powell to reiterate to markets what ammo the Fed does have in its back pocket.