Tuesday 6 October 2020 5:55 pm

Fed’s Jay Powell: Too much stimulus is better than too little

It is better for US policymakers to do too much to try to help the economy than to do too little, US Federal Reserve chair Jay Powell said in some of his most pointed comments about stimulus to date.

Powell told the National Association for Business Economics that the recovery from the coronavirus lockdowns of the spring “is still far from complete”.

He said rising coronavirus cases posed a major danger to the US economy’s rebound. And he cautioned that a slowdown now could hit the most vulnerable hardest and worsen inequality.

In this climate, Powell said, “too little support would lead to a weak recovery, creating unnecessary hardship for households and businesses”. He said unemployment and insolvencies would harm the economy’s productive capacity over time.

“By contrast, the risks of overdoing it seem, for now, to be smaller,” Powell said in an online event. “Even if policy actions ultimately prove to be greater than needed, they will not go to waste.

“The recovery will be stronger and move faster if monetary policy and fiscal policy continue to work side by side to provide support to the economy until it is clearly out of the woods.”

The remarks were widely seen as aimed at Congress and the White House. Both sides have so far failed to agree on a new stimulus package for the US economy.

In the second quarter, the US economy contracted by an enormous 9.5 per cent quarter on quarter. Although it has since rebounded strongly, growth is slowing and the jobs market is cooling.

Many economists argue the economy needs another injection of stimulus.

Republicans and Democrats are currently locked in negotiations. The Democrats want more than $2 trillion (£1.5 trillion) of spending but the Republicans have argued the economy needs far less.

Powell again signalled that interest rates would stay at their cent record-low level of between zero and 0.25 per cent for the foreseeable future.