Powell deferred to Congress on the details of any legislation, saying there seems to be an appetite for doing more. But he highlighted the millions of Americans still out of work, as well as the struggles of small businesses and state and local governments.
“The economy has proven resilient to the lapsing of the CARES Act enhanced unemployment benefits,“ he said. “But … those who were unemployed appear to have saved some of those benefits, and they’ll now spend them.“
“As the months pass, if there’s no follow up on that, if there isn’t additional support and there isn’t a job for some of those people who are from industries where it’s going to be very hard to find new work, that will start to show up in economic activity,“ he added.
The central bank expects the U.S. economy to shrink by 3.7 percent this year, a more optimistic forecast than its June estimate of a 6.5 percent contraction, but that number would still be much worse than 2009 — the worst year of the Great Recession — when GDP shrank by 2.5 percent.
Fed policymakers now expect unemployment to drop to 7.6 percent by the end of the year, also a somewhat more hopeful outlook than before; the current rate of 8.4 percent is already better than where Fed officials had previously thought the job market would be by December.
Powell also said areas of the economy wouldn’t be able to fully recover until there is a vaccine “that’s in wide usage and is widely trusted.“ But he nodded to activities that have resumed already, saying that it would be possible to do more with social distancing and mask wearing, as well as “cheap and rapid testing.“
“We’re learning to live with Covid, which still spreads,“ he said.
The central bank also shed more light on its pledge not to raise interest rates until prices begin to rise more rapidly, part of a bid to allow the unemployment rate to drop as low as possible and to avoid choking off a recovery too early.
Because the central bank has undershot its inflation target for so many years, it’s now trying to overshoot for a time so that inflation will ultimately average 2 percent.
On Wednesday, the Fed pledged not to raise rates until “inflation has risen to 2 percent and is on track to moderately exceed 2 percent for some time.”
That part of the statement garnered dissents from Dallas Fed President Robert Kaplan and Minnesota Fed President Neel Kashkari. Kaplan wanted to leave the Fed’s policy actions more open-ended, while Kashkari thinks the Fed should ensure that “core inflation has reached 2 percent on a sustained basis.”