Economy

More Fiscal Spending Needed, Says Fed Chairman in Warning to Administration
Written by Sandy Williams
May 14, 2020
Federal Reserve Chairman Jerome Powell delivered a dire forecast for the U.S. economy should the government fail to provide ongoing financial support for businesses and workers and warned of potential “lasting damage” to the economy.
“The scope and speed of this downturn are without modern precedent, significantly worse than any recession since World War II,” said Powell on Monday in remarks at the Peterson Institute of Economics
More than 20 million people have lost jobs in the U.S since the arrival of the pandemic two months ago, disproportionately affecting workers in households making less than $40,000 per year. Among those households, 40 percent lost jobs in March, said Powell. Job gains of the past decade have been erased.
A prolonged recession and weak recovery could further discourage business investment and expansion, job growth and technological advancement creating an “extended period of low productivity growth and stagnant incomes,” said Powell.
Downturns in the past have been linked to cycles of high inflation followed by Fed tightening, said Powell. An example is the unsustainable housing boom of 2007-2008 that led to unbridled mortgage lending and the Great Recession.
“The current downturn is unique in that it is attributable to the virus and the steps taken to limit its fallout,” said Powell. “This time, high inflation was not a problem. There was no economy-threatening bubble to pop and no unsustainable boom to bust. The virus is the cause, not the usual suspects—something worth keeping in mind as we respond.”
So far Congress has provided $2.9 trillion in fiscal support, about 14 percent of gross domestic product. “While the coronavirus economic shock appears to be the largest on record, the fiscal response has also been the fastest and largest response for any postwar downturn.”
The Federal Reserve acted with unprecedented speed, using emergency tools to cut interest rates, purchase treasuries and securities, smooth functioning in money markets, provide credit to households, businesses and state and local governments and initiate temporary regulatory adjustments for banks. Actions like these are taken only in “extraordinary” and “unusual and exigent circumstances,” said Powell.
“At the Fed, we will continue to use our tools to their fullest until the crisis has passed and the economic recovery is well under way. Recall that the Fed has lending powers, not spending powers.” Loans from Fed facilities are just a “bridge” to provide liquidity to help borrowers get through the crisis.
“But the recovery may take some time to gather momentum, and the passage of time can turn liquidity problems into solvency problems. Additional fiscal support could be costly, but worth it if it helps avoid long-term economic damage and leaves us with a stronger recovery. This tradeoff is one for our elected representatives, who wield powers of taxation and spending.”

Sandy Williams
Read more from Sandy WilliamsLatest in Economy

Second steel derivatives S232 inclusion window opens, business community voices concern
The US Department of Commerce announced that its second window for submitting applications for the inclusion of derivative steel and aluminum products in Section 232 tariffs is now open, according to the US Federal Register. September’s Inclusion Window Sept. 15 through Sept. 29, applicants can email requests for inclusions to the Defense Industrial Base Programs. The first […]

Steel Summit: ITR economist urges execs to prepare for growth, not recession
If the steel industry professionals who made it to the very final presentation of this year’s SMU Steel Summit were expecting another round of cautious forecasting, they were in for a surprise. Because what they got was a wake-up call.

ISM: Manufacturing growth remained down in August
US manufacturing activity remained muted in August despite a marginal gain from July's recent low, according to supply executives contributing to the Institute for Supply Management (ISM)’s latest report.

Steel Summit: Dr. Basu blames tariffs for riskier path ahead
Steel executives packed the main conference hall of the 2025 SMU Steel Summit on Tuesday, Aug. 26, to hear economist Dr. Anirban Basu lay out his blunt view of tariffs, inflation, and demand.

Steel Summit: Schneider sees SDI ‘on the edge of a very good run’
Steel Dynamics Inc. (SDI) President and Chief Operating Officer, Barry Schneider, remains bullish about the Fort Wayne, Ind.-based steelmaker’s position in the current market.