With six weeks to go until the November 3 presidential election, the United States economy is definitely on the mend, but the recovery is incomplete and another round of spending from Congress is almost surely in order.
That was the message Tuesday on Capitol Hill, where Federal Reserve Chairman Jerome Powell and US Treasury Secretary Stephen Mnuchin were testifying before the US House Committee on Financial Services.
In prepared remarks, Powell listed the many strides the economy has made since COVID-19 lockdowns sent it into a tailspin earlier this year.
Roughly half of the 22 million jobs lost in March and April have been regained as people return to work. Household spending has recovered about three-quarters of its pre-pandemic strength and the housing market is on fire.
Mnuchin was more effusive with his characterisation of the economy’s comeback, telling Congressional lawmakers, “America is in the midst of the fastest economic recovery from any crisis in the US.”
But for all that arguably impressive progress, the recovery is far from complete and there are signs it is starting to plateau as the turbo-charge fades from roughly $3 trillion in stimulus aid Congress passed earlier this year.
Layoffs are still widespread, according to the latest weekly jobless claims data. Consumers are growing more cautious with their spending and output at the nation’s factories is slowing down.
Moreover, as Powell has consistently noted in public remarks, the COVID-19-induced recession did not hit everyone equally, and the recovery is leaving many Americans behind.
“The rise in joblessness has been especially severe for lower-wage workers, for women, and for African-Americans and Hispanics,” said the Fed chief. “This reversal of economic fortune has upended many lives and created great uncertainty about the future.”
Data released by the Fed on Monday underscored the deepening divide between America’s haves and have-nots.
Household wealth in the US rebounded last quarter to a record high, but the majority of the gains flowed to those who are more well-off, including homeowners and households with stock portfolios.
That is largely the result of Federal Reserve policies that have lowered borrowing costs, including home mortgages, and made trillions of dollars available in lending facilities to keep credit flowing to business and households – which Wall Street finds assuring.
The Fed though is also cognisant of the lagging recovery on Main Street and has vowed to keep interest rates near zero for years if necessary to prioritise getting Americans back to work, even if inflation shows signs of heating up.
But the Fed’s powers are confined to lending. Spending, on the other hand – that’s where Congress comes in.
Six months into the pandemic, another round of virus relief aid to help struggling households, business and state and local governments is proving elusive, as Democrats on Capitol Hill remain at loggerheads with Republicans over the details of a new deal.
Democrats in the House passed a new virus relief bill back in May, but the Republican-led Senate took issue with the scope of the package and the cost to taxpayers.
Mnuchin, who spearheads virus relief negotiations for the White House, told lawmakers on Tuesday that another “targeted package” of relief aid is needed, noting that some industries have been “particularly hard hit by the pandemic”, such as travel and restaurants.
Powell was less direct. Preferring to keep the firewall between Fed lending and Congressional spending intact, the Fed chief offered the equivalent of a nudge to Congress, telling lawmakers: “I think that it is likely that more fiscal support will be needed” to help keep the economic recovery on track.