The resurgence in coronavirus cases in recent weeks is weighing on US economic activity, and a recovery will depend both on checking the virus and government aid, Federal Reserve Chair Jerome Powell said on Wednesday.
Halting the spread of COVID-19 is key as American consumers will not start spending again until they feel it is safe to do so, Powell said, but in the meantime some additional support will be needed to make it through the worst crisis in recent memory.
With the United States' case count on the rise and recent indicators showing the tentative rebound from the downturn may be stalling, the policy-setting Federal Open Market Committee held the benchmark lending rate at zero as expected.
The committee stressed the "tremendous human and economic hardship" caused by the pandemic, and the uncertainty about the coming months.
Powell told reporters the outlook "will depend in large part on our success in keeping the virus in check."
"The path forward will also depend on policy actions taken at all levels of government to provide relief and to support the recovery for as long as needed," he said.
The comments came as Republicans and Democrats in Congress are locked in debate over their dramatically different views on the next emergency spending package.
As expanded unemployment payments and a moratorium on evictions are set to expire, Senate Republicans this week unveiled a US$1-trillion proposal that slashes additional weekly jobless benefits to US$200 a week from US$600, but also would offer a second round of US$1,200 payments to individuals and give funding to schools, provided they reopen.
But Democrats are pushing for a US$3-trillion plan that retains the higher unemployment payments.
Staying out of politics
Powell has been careful to avoid treading into the dangerous area of advising legislators, but he again made clear that more spending would be appropriate.
"The current economic downturn is the most severe in our lifetimes... and it will take continued support from both monetary and fiscal policy" to achieve a recovery, he said.
Economists expect GDP in the second quarter to have contracted more than 35 percent, but the Fed chief said the initial rounds of support from Congress "made a critical difference to families, businesses and communities across the country."
But he warned, "we have seen some signs in recent weeks that the increase in virus cases and the renewed measures to control it are starting to weigh on economic activity."
Authorities in states like California, Texas and Arizona have had to reimpose restrictions and close businesses, and data shows the rebound in employment has slowed.
Powell said the economy in May and June recovered about a third of the more than 20 million jobs lost in the early weeks of the pandemic shutdown, but those gains are now at risk.
No change in policy
The FOMC repeated its intention to hold rates near zero "until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals."
But it refrained from making a more explicit commitment to allowing inflation to rise beyond the Fed's longstanding 2.0 percent target before tapping the brakes on the stimulus it is providing to the economy.
Many economists are expecting a change in this "forward guidance" but few thought it might happen before September given the growing uncertainty around the economic outlook.
Powell said central bankers discussed "possible enhancements to our statement on longer-run goals and monetary policy strategy," but declined to go into detail until the review is complete.