Mixed Signals from President, Clear Signal from Federal Reserve, Next COVID Package?

Last week on Tuesday, October 6, 2020, Federal Reserve Chairman Jerome Powell told members of the National Association for Business Economics that there needs to be more stimulus, telling members, “Too little support would lead to a weak recovery, creating unnecessary hardship for households and businesses.” Shortly after giving a boost to the discussions that were to resume later that day between Speaker of the House Nancy Pelosi (D-CA) and Treasury Secretary Steven Mnuchin by telephone, President Trump directed they be called off. 

 

Powell said that the earlier COVID-19 packages that included supports such as direct payments to families, forgivable loans to small businesses, and an extra $600 per week in unemployment benefits had an important impact saying, the relief had “muted the normal recessionary dynamics that occur in a downturn.” 

 

Importantly Powell, talking about some of the disproportionate effects the pandemic has had on people this year, said, “A long period of unnecessarily slow progress could continue to exacerbate existing disparities in our economy. That would be tragic, especially in light of our country’s progress on these issues in the years leading up to the pandemic.”

 

Whenever a Chair of the Federal Reserve speaks it has a worldwide impact on markets and economies. His remarks had raised hopes before the President cut-off negotiations. Powell went on to tell the gathering that a lack of stimulus, “Over time, household insolvencies and business bankruptcies would rise, harming the productive capacity of the economy and holding back wage growth… By contrast, the risks of overdoing it seem, for now, to be smaller.”

 

The House approved their latest COVID-19 relief legislation on Thursday, October 1, 2020, while the Speaker Nancy Pelosi (D-CA) and Treasury Secretary Steven Mnuchin continued their telephone conversations over a package that would presumably fall between the House’s latest $2.2 trillion COVID-19 relief bill and the Administration’s last public offering of approximately $1.5 trillion.  

 

Various reports suggested that some progress had been made, but it is unclear where. There appeared to be disagreements on how or if there should be more state relief with the Administration seeking to limit that, and there were disagreements over tax credits, especially the child tax credit, with the House speaker pushing for more.

About the Author:

John Sciamanna is CWLA's Vice President of Public Policy.

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