Additional government spending may be necessary to avoid long-lasting fallout from the coronavirus pandemic, Federal Reserve Chairman Jerome Powell said Wednesday.
Powell said the economy should recover once the virus is under control. But he cautioned that without more help, many small businesses may not survive that long. And he warned that a wave of business and household bankruptcies could do lasting damage to the nation's economic output.
"We ought to do what we can to avoid these outcomes," Powell said, in a speech to the Peterson Institute for International Economics.
He noted that Congress has already provided $2.9 trillion to prop up the economy — "the fastest and largest response for any postwar downturn" — but said more federal spending is needed.
"Additional fiscal support could be costly, but worth it if it helps avoid long-term damage and leaves us with a stronger recovery," Powell said. House Democrats unveiled an additional $3 trillion spending proposal this week.
Powell said the central bank would continue to use its own tools to support the economy, but he dismissed the idea of negative interest rates.
"This is not something that we're looking at," Powell said, noting that members of the Fed's rate-setting committee had unanimously rejected the notion of negative rates last fall.
"While we are all affected, the burden has fallen most heavily on those least able to bear it," Powell said.
A Fed survey set to be published on Thursday showed nearly 40% of workers in households making less than $40,000 a year lost a job in March. The layoffs are especially jarring after a period of exceptionally low unemployment that had delivered outsize rewards to those at the bottom of the income ladder.
"This reversal of economic fortune has caused a level of pain that is hard to capture in words, as lives are upended amid great uncertainty about the future," Powell said.
He praised the health care workers and other essential employees who have continued to work, despite the risks posed by the deadly virus.
Powell stressed that this economic downturn is distinct from other recent recessions that were caused by the popping of asset bubbles or a spike in interest rates to address high inflation.
"The virus is the cause, not the usual suspects," he said.