Testifying before the Senate Banking Committee today, Federal Reserve Chairman Jerome Powell flagged risks that could arise if the economic downturn associated with the pandemic continues for an extended time period. These risks include “lasting damage to the productive capacity of the economy through the labor force because of long term unemployment” along with “unnecessary, avoidable insolvencies on the of small and medium-sized businesses.”
He added that additional fiscal or monetary policy support may be necessary, depending on how the recovery proceeds. “It comes down to sensibly, thoughtfully opening up the economy in a way that builds confidence and keeps people safe,” Powell said. “It’s really important that we do that well.” Powell noted that congressional efforts to date have been “timely and forceful,” adding that “I do think we need to take a step back and ask, over time, is it enough, and be ready to act if the need is there.”
Powell also praised the banking industry response to the pandemic. “The banks have been strong, they’ve been making loans, they’ve been taking in deposits,” he said. “We’ve tried to provide relief so they can continue to do what they’re doing.”
