The return of U.S. jobs will be slow to permeate all sectors of the economy and likely to leave low-wage workers to suffer longest if the shutdown lingers, warned Jerome Powell, chair of the U.S. Federal Reserve System, in 16 June testimony to Congress.
The shutdown cost jobs among African Americans, Hispanics, and women more than among white men, Powell noted. If that trend “is not contained and reversed, the downturn could further widen gaps in economic well-being that the long expansion had made some progress in closing,” he said.
The return of jobs to their pre-pandemic levels will take a long time, Powell emphasized.
“I think there are going to be an awful lot of unemployed people for some time,” he said. “Even if we start putting people back to work really fast… there are still going to be plenty of people who don’t have jobs and that may not have them for a while because there are no jobs in travel, accommodation,” and other areas especially damaged by the shutdown.
The economy added 2.5 million jobs in May, according to the U.S. Bureau of Labor Statistics, but by 20 June more than three million people filed new claims for unemployment in the month, according to the same agency’s figures.
A slow recovery will be especially damaging for small businesses, which already are at “acute risk” from the shutdown’s effects, he stressed.
A full economic recovery is unlikely until the public is convinced the COVID virus is contained, Powell said.
Breaking his habit of not endorsing specific legislative policies, Powell told Congress that any economic recovery might be jeopardized if lawmakers ended support payments to individuals and businesses abruptly.
“It would be a concern if Congress were to pull back” too quickly “from the support it’s providing,” he warned.
“I would say that there’s a reasonable probability that more” stimulus money “will be needed, both from you [meaning Congress] and the Fed,” he said.
Two former Fed chairs, three economists who served in presidential administrations, and more than 100 other economists have formally called on Congress to enact additional aid, saying it was needed if the economy is to recover expeditiously from the shutdown’s impact.
House Democrats are pressing for another round of stimulus spending while Senate Republicans are unable to agree on how such spending should be structured or whether it is needed at all.
Fed officials have said they expect to leave interest rates near zero through 2022; Powell has projected U.S. unemployment to still be at 9 or 10 percent by 2021.
TREND FORECAST: We note that since the 1987 stock market crash, the Fed always has championed the “fundamentals of the economy are sound,” line to keep equity markets from falling.
Thus, the Fed loudly warning of the economic dangers ahead signifies the reality of our forecast that the “Greatest Depression” has begun.
