Will The US Economy Rebound? Democrats, Jerome Powell Push Spending Big To Avoid Depression

U.S. Federal Chairman Jerome Powell on Wednesday appeared to endorse the Democrats’ latest coronavirus relief bill – a $3 trillion package that would provide direct payments to taxpayers and their children – saying spending big now is “worth it” to prevent prolonged economic pain.

The remarks followed a warning by St. Louis Fed President James Bullard that a wave of COVID-19 bankruptcies could send the economy into a depression.

Democrats unveiled a bill Tuesday that would more than double the relief already approved by Congress in a bid to shore up the economy, but Republicans are pushing back amid a soaring budget deficit, arguing there hasn’t been enough time to assess the impact of four earlier bills.

“We must think big for the people now because if we don’t, it will cost more in lives and livelihood later," Pelosi said in unveiling the bill.

Powell, in a streaming event held by the Peterson Institute for International Economics, backed the approach without specifically referring to the legislation.

“Additional fiscal support could be costly, but worth it if it helps avoid long-term economic damage and leaves us with a stronger recovery,” Powell said.

Powell went through a list of congressional and Fed actions taken since the U.S. economy shut down as nonessential businesses were ordered closed and Americans were advised to stay in their homes.

“The overall policy response to date has provided a measure of relief and stability, and will provide some support to the recovery when it comes. But the coronavirus crisis raises longer-term concerns as well. The record shows that deeper and longer recessions can leave behind lasting damage to the productive capacity of the economy,” Powell said.

The Fed chairman said action needs to be taken to avoid a wave of household and business bankruptcies that could weigh on the economy for years, noting the loss of small- and medium-size businesses would limit job creation, lengthening the downturn.

“We ought to do what we can to avoid these outcomes,” he said.

Powell had been expected to express his opposition to negative interest rates, something for which President Trump has been pushing, most recently on Tuesday. Fed policymakers worry negative rates would have an adverse impact on both savers and banks.