Fed Chair Powell has prodded Congress to ramp up federal relief spending. Here are the 3 additional steps he thinks the government should take to keep the economy afloat.

Joseph Zeballos-RoigJun 21, 2020, 18:20 IST

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Powell testified to Congress this week, and he weighed in about the risks of abruptly cutting off federal aid too soon.
"It would be wise to look at ways to continue to support people who are out of work and also smaller businesses that may not have vast resources for a period of time … so that we can get through this critical phase," he said.
Among the three key areas where Powell has prodded lawmakers to act are aid to states, unemployment benefits, and public health measures.

Federal Reserve Chair Jerome Powell testified to Congress earlier this week on the state of monetary policy during the coronavirus pandemic. But he's increasingly sounding off about the risks of yanking away federal aid to struggling people and businesses too soon.

Powell has endured a hefty amount of ridicule from President Donald Trump, who once labeled him "an enemy of the state." The president recently blasted the Fed as being "wrong so often."

But that hasn't derailed Powell from launching programs to aimed at pumping massive amounts of cash into the economy and keep the recession from worsening.

The Fed traditionally doesn't directly advocate for specific fiscal policy initiatives as it's supposed to be apolitical and keep out of partisan political battles. Yet Powell is nudging lawmakers to recognize the dangers of inaction as the economy starts recovering, given a projected unemployment rate of nearly 10% at the end of the year.

"It would be wise to look at ways to continue to support people who are out of work and also smaller businesses that may not have vast resources for a period of time … so that we can get through this critical phase," he said. "That support would be well placed at this time."

Here are the three key areas where Powell has encouraged further federal action to keep the economy afloat.

Congress should extend boosted unemployment aid to jobless people.

People lining up to file unemployment claims in Arkansas back in April. Reuters

The Fed chair said there was still "reluctance" among many workers to head back to work during the pandemic, particularly those who held jobs in the service sector where close contact with customers is the norm.

Powell said that possibility "probably" mandates an extension of boosted unemployment benefits.

"I would just say ... it probably is going to be important that it be continued in some form ... but you wouldn't want to go all the way to zero on that," Powell told lawmakers on Wednesday.

Republicans largely oppose extending the $600 weekly federal boost to unemployment payments, while Democrats are pushing to extend it through the end of the year.

The increases are set to expire on July 31 without any further replacement, but many economists say that it won't be possible for millions of unemployed people to re-enter the workforce anytime soon since jobs will be scarce.

A bipartisan group of top economists unveiled on Tuesday a plan to implement beefed-up payments of up to $400 a week tethered to unemployment rates in individual states.

The Fed chair said there was still reluctance among many workers to head back to work during the pandemic, particularly those who held jobs in the service sector where close contact with customers is the norm.

Powell said that possibility probably mandates an extension of boosted unemployment benefits.

I would just say ... it probably is going to be important that it be continued in some form ... but you wouldn't want to go all the way to zero on that, Powell told lawmakers on Wednesday.

Republicans largely oppose extending the $600 weekly federal boost to unemployment payments, while Democrats are pushing to extend it through the end of the year.

A bipartisan group of top economists unveiled on Tuesday a plan to implement beefed-up payments of up to $400 a week tethered to unemployment rates in individual states.

Getting aid to states is important to get the economy back on its feet.

New York Gov. Andrew Cuomo is facing mounting scrutiny over his handling of the coronavirus when it comes to nursing homes. Darren McGee/Office of Governor Andrew M. Cuomo via AP

Powell laid out the stakes for lawmakers if no further aid is granted to states over the next few weeks.

"States and local governments are large employers and they provide critical services to people. And there's a balanced budget tradition effectively in almost every state," he said.

Powell went on: "When there are budget problems, what happens is you see layoffs and cutbacks in essential services. Both of those create not just human misery but they also weigh on the economy. I do think its an area... for Congress to look."

Over 1.5 million government workers have been laid off in the pandemic so far, according to the Labor Department — the vast majority of them in education.

Powell laid out the stakes for lawmakers if no further aid is granted to states over the next few weeks.

States and local governments are large employers and they provide critical services to people. And there's a balanced budget tradition effectively in almost every state, he said.

Powell went on: When there are budget problems, what happens is you see layoffs and cutbacks in essential services. Both of those create not just human misery but they also weigh on the economy. I do think its an area... for Congress to look.

Over 1.5 million government workers have been laid off in the pandemic so far, according to the Labor Department — the vast majority of them in education.

The government should continue funding efforts to suppress the coronavirus.

Nurses are applauded by police and firefighters as they leave Kaiser Hospital at the end of their shift on May 14, 2020 in South San Francisco, California. ustin Sullivan/Getty Images

Powell said that only fully ending the pandemic would restore public confidence in the economy and put it back on the road to recovery.

"Much of that economic uncertainty comes from uncertainty about the path of the disease and the effects of measures to contain it. Until the public is confident that the disease is contained, a full recovery is unlikely," Powell said in remarks on Tuesday before the Senate Banking Committee.

He said spending on contact tracing and testing efforts intended to curb the spread of the coronavirus would significantly benefit everyone.

Powell said that only fully ending the pandemic would restore public confidence in the economy and put it back on the road to recovery.

Much of that economic uncertainty comes from uncertainty about the path of the disease and the effects of measures to contain it. Until the public is confident that the disease is contained, a full recovery is unlikely, Powell said in remarks on Tuesday before the Senate Banking Committee.

He said spending on contact tracing and testing efforts intended to curb the spread of the coronavirus would significantly benefit everyone.

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Fed Chair Powell has prodded Congress to ramp up federal relief spending. Here are the 3 additional steps he thinks the government should take to keep the economy afloat.

Congress should extend boosted unemployment aid to jobless people.

Getting aid to states is important to get the economy back on its feet.

The government should continue funding efforts to suppress the coronavirus.