WASHINGTON – Fed Chair Jerome Powell highlighted the recession’s uneven toll on the American workforce in his latest testimony before a Senate banking panel, emphasizing the heavy job losses for low-income households.

“The burden of the downturn has not fallen equally on all Americans. Instead, those least able to withstand the downturn have been affected most,” according to Powell’s statement before the Senate Banking, Housing and Urban Affairs Committee Tuesday morning.

Powell warned that the downturn could widen economic gaps and inequalities that had begun to narrow during the economic expansion.

Powell framed the current economic crisis as one wholly unlike past recessions. In 2020, apart from government stimulus or monetary policy, the path forward rests on controlling a deadly pandemic and giving the public confidence that the disease is contained. And so far, the public health crisis has spiraled on, with several states facing spikes in coronavirus cases.

“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, according to the statement.

He noted signs of progress as businesses reopen and the government extends loans and grants, but warned the “significant uncertainty remains about the timing and strength of the recovery,” jeopardizing the gains made by many disadvantaged Americans since the Great Recession, Powell said in prepared remarks.

“The longer the downturn lasts, the greater the potential for longer-term damage from permanent job loss and business closures. Long periods of unemployment can erode workers’ skills and hurt their future job prospects,” Powell said.

The Fed’s maneuvers to steer the economy toward a recovery in this public health crisis have gone far beyond its interventions during the Great Recession. The central bank’s historic efforts could grow its balance sheet to $10 trillion by the end of the year, and interest rates will likely stay at or near zero through 2022.

On Monday, the Fed launched its much-anticipated Main Street Lending Program, aimed at helping small and midsized businesses. The central bank also said it would start buying a slew of corporate bonds of large companies, including those that aren’t asking for relief.

Still, Powell has emphasized that the recovery will take time and that more aid will be needed from Congress as millions of Americans risk permanently lose their jobs. Last week, the Fed predicted that unemployment will only fall to 9.3% by the end of this year and 6.5% by the end of 2021.

Powell will testify on the hill again on Wednesday, before the House Financial Services Committee.

The Fed’s semiannual report on monetary policy contrasts sharply with the outlook from February, when the unemployment rate was at 50-year low of 3.5%. The official unemployment rate spiked to 14.7% in April, before ticking down slightly to 13.3% last month. (If not for a “misclassification error” in the May jobs report, the unemployment rate would have been about 3 percentage points higher than reported, or roughly 16.3% in May, and 5 percentage points higher in April or 19.7%.)

The most severe job losses have hit low-wage earners. That includes low-income black and Hispanic Americans, and especially women, who held restaurants, retail and hospitality jobs that vanished as the country entered lockdown. A recent Fed survey showed that among households with an annual income of $40,000 or less, nearly 40% of workers in February experienced job losses in March or early April, compared to 20% of the overall population.

Still, critics say that the Fed’s crisis response – including low interest rates that have lifted the stock market – is only widening economic inequality. Those who don’t have significant savings or investments can’t benefit from the market’s resurgence in the same way as wealthier Americans. Progressives have also charged that the Fed is doing too little to address the black unemployment rate, which rose last month to 16.8%, while white unemployment fell to 12.4%.

Powell has said the Fed’s emergency response kept the economic downturn from deepening even further. And Fed leaders have been arguing that Congress is better equipped to send aid directly to households and businesses. In recent days, presidents of regional Fed banks have called on lawmakers to boost spending on education, digital infrastructure, health and child care to make for a stronger economy that is also more equitable in the long term.

Comments are not available on this story.

filed under: