2nd LD Writethru: U.S. Fed chief warns of recessionary dynamics amid slower, incomplete recovery

By Gao PanXu Yuan

WASHINGTON, Oct. 6 (Xinhua) -- U.S. economic recovery remains far from complete and a prolonged slowing in the pace of improvement over time could trigger typical recessionary dynamics, U.S. Federal Reserve Chairman Jerome Powell said Tuesday.

"We should continue do what we can to manage downside risks to the outlook. One such risk is that COVID-19 cases might again rise to levels that more significantly limit economic activity, not to mention the tragic effects on lives and well-being," Powell said at the National Association for Business Economics virtual annual meeting.

"A second risk is that a prolonged slowing in the pace of improvement over time could trigger typical recessionary dynamics, as weakness feeds on weakness. A long period of unnecessarily slow progress could continue to exacerbate existing disparities in our economy," he said.

Powell noted that U.S. fiscal and monetary policy actions have so far "substantially muted" the normal recessionary dynamics that occur in a downturn, but without further support those downward trends could still emerge.

"Over time, household insolvencies and business bankruptcies would rise, harming the productive capacity of the economy, and holding back wage growth," he said.

Noting that the recovery is "still far from complete", Powell said the risks of providing more policy support for now seem to be smaller.

"Even if policy actions ultimately prove to be greater than needed, they will not go to waste. The recovery will be stronger and move faster if monetary policy and fiscal policy continue to work side by side to provide support to the economy until it is clearly out of the woods," he said.

The Fed chief reiterated that U.S. economic outlook remains "highly uncertain", in part because it depends on controlling the spread and effects of the virus.

"There is a risk that the rapid initial gains from reopening may transition to a longer than expected slog back to full recovery as some segments struggle with the pandemic's continued fallout," Powell said, noting economic recovery has slowed in recent months.

"The pace of economic improvement has moderated since the outsize gains of May and June, as is evident in employment, income, and spending data. The increase in permanent job loss, as well as recent layoffs, are also notable," he said.

Powell's remarks came after the United States saw new surge of single-day COVID-19 cases over the last week, with more than 20 states reporting rise in cases.

The Fed last month kept its benchmark interest rate unchanged at the record-low level of near zero and signaled to maintain this target range until at least 2023, noting that the path of the economy will depend significantly on the course of the coronavirus.

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