Spotlight: U.S. Fed chief warns of recessionary dynamics as relief talks drag on

WASHINGTON, Oct. 6 (Xinhua) -- U.S. Federal Reserve Chairman Jerome Powell warned on Tuesday that a prolonged slowing economic recovery from the pandemic could trigger typical recessionary dynamics, as the COVID-19 relief talks drag on with no bipartisan deal in sight.

"We should continue to 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 (NABE) 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.

Compared with May and June, the economy's recovery from the COVID-19 induced recession has slowed in recent months as the effects of fiscal stimulus fade, Powell noted.

"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," he said, urging policymakers to provide more relief to households and businesses hurt by the pandemic.

"At this early stage, I would argue that the risks of policy intervention are still asymmetric. Too little support would lead to a weak recovery, creating unnecessary hardship for households and businesses," said the Fed chief, adding the risks of overdoing it 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.

Powell's remarks came as congressional lawmakers and the Trump administration remain deadlocked over the next COVID-19 relief package.

House Speaker Nancy Pelosi and Treasury Secretary Steven have resumed negotiations over the relief package in recent days, but the talks so far yielded no deal, with significant differences remaining in key areas such as aid to state and local governments.

"Chairman Powell's warning could not be more clear: robust action is immediately needed to avert economic catastrophe from the devastation of the coronavirus pandemic," Pelosi said Tuesday in a statement.

"It is long overdue for Republicans to join us in passing a bill that meets the needs of the American people by protecting our heroes, crushing the virus and putting money in the pockets of workers," she said.

The Democrats-controlled House last week passed a 2.2-trillion-U.S. dollar COVID-19 relief bill. However, some Senate Republicans previously signaled that they are not willing to support any package that costs over 1.5 trillion dollars to salvage the economy reeling from the pandemic.

Economists, as well as Federal Reserve officials, have argued that more fiscal relief is needed to sustain the economic recovery, warning of dire consequences if further fiscal support is not provided in time.

Major downside risks to the U.S. economy include fiscal policy inaction, a second wave of COVID-19 and an increasing number of bankruptcies, according to a survey of 52 economists released by the NABE on Monday.

About half of economists surveyed put the odds of a "double-dip" recession in the United States at 20 percent or less, while 12 percent of economists place those odds at 50 percent or greater.

With less than a month until Election Day, it is not clear whether Republicans and Democrats could bridge their differences and reach an agreement on the relief package before the presidential election on Nov. 3.

Powell's remarks also 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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