Daily Management Review

US Fed chief asks Congress to approve new stimulus package


Head of the Federal Reserve System (Fed) Jerome Powell called on the US Congress and the White House to agree on the parameters of a new package of fiscal measures to support the economy. The proposal is aimed at stimulating its recovery, the pace of which weakened in August and September compared with May-June. Mr. Powell noted that excessive measures will be less harmful than insufficient ones. Negotiations on the package, however, are still pending: last Thursday, the House of Representatives of the US Congress formally approved a $ 2.2 trillion Democratic plan, but it has little chance of Senate approval.

Federalreserve via flickr
Federalreserve via flickr
The US economy will recover "stronger and faster" if the volume of fiscal support is large, said Fed Chairman Jerome Powell, pointing out that this is necessary to prevent a decline in employment and that “even if the measures turn out to be larger than the market demands, they will not be wasted.” Insufficient support for the economy is a big risk, which could undermine the recovery process: an increase in the number of bankruptcies of households and companies can lead to a decrease in productivity and limit wage growth.

A slowdown in the economy could provoke its transition to a typical recessionary dynamic, as the weakness of some indicators will increase the weakness of others, the head of the Fed warned.

Note that this scenario also looks worrying to the head of the second largest monetary regulator, the European Central Bank (ECB), Christine Lagarde. According to her, the recovery of the eurozone economy also "looks a little less stable" in the context of the second wave of COVID-19, and new, although relatively mild, restrictive measures will affect growth rates and may impede V-trajectory recovery. At the same time, according to Jerome Powell, the pace of recovery of the American economy has already slowed down compared to May and June, and the income of the population fell in August. The growth in the number of jobs, according to American statistics, also slowed down to 661 thousand against 1.5 million in August.

Prior to this, the head of the Fed has repeatedly called on Congress to approve a new package of tax, budgetary and financial measures to support economic growth. Among other things, this is indirect evidence of the exhaustion of the regulator's resources (unlike the ECB, the possibility of lowering rates to a negative level by the American Open Market Committee is being considered, while various liquidity programs have already been activated).

However, no agreement has yet been reached in negotiations on a new stimulus package: House Speaker Nancy Pelosi said that, in her opinion, the process of agreeing on its content with the US Treasury Secretary is "very slow." Last Thursday, the House of Representatives of Congress approved a $ 2.2 trillion plan of Democrats, but the White House believes that spending should not exceed $ 1.6 trillion, so the bill has little chance of passing in the Senate, where the majority of seats are held by Republicans. 

source: bloomberg.com