US Federal Reserve officials on Monday said that another round of fiscal relief would be critical for the US economy, as lawmakers continued to negotiate the contours of additional aid.
Tens of millions of Americans who lost their jobs as a result of the COVID-19 pandemic have in the past few months relied on the enhanced unemployment insurance payments authorized by the US Congress in March to pay their bills and put food on the table, while temporary moratoriums on evictions have kept roofs over their heads.
“It’s very important that something be done,” Chicago Fed President Charles Evans told reporters on Monday. “If we go very long without somehow addressing the reduction and evaporation of that support, I think it’s going to show up in lower aggregate demand, and that would be very costly for the economy.”
Lawmakers allowed the enhanced payments of US$600 a week to expire on Friday and have yet to agree on an extension. The lapse comes as high-frequency indicators suggest the economic recovery is at risk of stalling due to renewed outbreaks across the country.
Democrats in Congress want to extend the US$600 payments — which were added to regular unemployment insurance benefits as part of the package passed in March — through January. Republicans say that the payments should be reduced because they are too generous and discourage people from returning to work.
The enhanced benefits would need to be extended in some form, Dallas Fed President Robert Kaplan said, adding that the extra spending power households have been provided with has probably kept more people employed than would otherwise be the case.
“The increased incomes, while it may have made it harder for certain individual businesses to hire, it’s helped create jobs because it’s helped bolster consumer spending, so the net effect still has probably been positive for the economy and for employment,” Kaplan said in a Bloomberg Television interview.
Richmond Fed President Thomas Barkin made a similar point.
“Quickly pulling away the support that consumers and businesses are receiving would be a pretty traumatic move for what’s happening in the economy,” he said at a separate event.
Central bankers are underscoring the need for lawmakers to take action in part because the Fed has already slashed its benchmark interest rate to nearly zero.
Monetary policy would have a bigger impact once the economy began to rebound again, because low rates would help encourage businesses and households to borrow and invest more, Evans said.
Fed officials are debating whether to enhance their public guidance about the future path of rates by tying it to specific thresholds for unemployment and inflation, a move Fed watchers expect to come after the central bank’s next policy meeting next month.
“Unless inflation starts heading up to like 2.5 percent, I’m not going to really see a need for the funds rate to be increasing as long as we can still drive unemployment lower, that we can get more people into the workforce, we can recover from some of what we’ve just sort of experienced and get everybody back on their feet,” Evans said. “So, I think that’s the kind of forward guidance I know I would be arguing for.”
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