Powell to Congress: Just Do It!

So much for a “V”-shaped economic recovery, where output collapses quickly and then shoots back up. As the U.S. enters its third month of the pandemic-induced lockdown economy, analysts have replaced the hopes/predictions of a quick turnaround (and its slower cousin, the “U-shaped” recovery) with a new image: the Nike Swoosh recovery, where the economy crawls out of the cataclysmic hole and takes two or three years to return to where it was prior to the outbreak.

Federal Reserve Chairman Jerome Powell could have channeled the sneaker and apparel giant when delivering a message to Congress and the Administration last week: JUST DO IT! Powell warned that the current recession could be deeper, more painful and longer lasting, unless lawmakers and the president come up with more relief money.

He reiterated comments from his press conference following the last Federal Open Market Committee meeting on April 29, urging/begging for more fiscal stimulus to blunt the impact of “a level of pain that is hard to capture in words.” While the Fed would continue to open the spigots, it only has the authority to lend, not to spend. Writing checks is the job of Congress and unless the legislative branch adds to the $3 trillion in aid already provided, “the passage of time can turn liquidity problems into solvency problems.” Translation: Just Do It, or else we are going to see a wave of personal and business bankruptcies that will amount to an L-shaped recovery: one in which the economy never fully recovers.

Powell will have the opportunity to make the direct ask to Congress on Tuesday, when he and Treasury Secretary Mnuchin testify before the Senate Banking committee. (The CARES Act requires them to give quarterly updates to Congress.) While some lawmakers have expressed doubt about spending more, due to debt and deficit concerns (odd that they did not have those concerns in December 2017, when voting for a tax cut for corporations and wealthy individuals), Powell is likely to repeat his mantra, that “The time will come where we can think about a long-term way to get our fiscal house in order, but this is not the time to let that get in the way of us winning this battle.”

Fresh Fed research underscored the need for action: “40 percent of those in households making less than $40,000 a year had lost a job in March.” A separate report from the NY Fed found nearly one-third of Americans expect their own household financial situation will be worse in a year, the highest level on record. The pandemic has also caused a spike in fear of job loss; historically low expectations for income and spending; and uncertainty about getting credit.

As weekly jobless claims pile up (36.5 million over the course of eight weeks), economists fear that many of these millions of workers will not be temporarily sidelined. The National Bureau of Economic Research (NBER) predicts 42 percent of recent layoffs will be become permanent. Economist Diane Swonk put it bluntly, when she wrote, “The U.S. economy is at a proverbial fork in the road. Either we tame the COVID-19 virus and provide more support for households and firms ravaged by the humanitarian and economic effects, or we will suffer a deeper and longer recession. We will never look back and say we did too much. We could look back with regret and grief, wondering: Why didn’t we do more when we had the chance?”