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Global central bankers say fiscal aid crucial in new phase of pandemic battle

EconomyOct 06, 2020 11:16PM ET
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© Reuters. Senate's Committee on Banking, Housing, and Urban Affairs hearing

By Howard Schneider and Balazs Koranyi

(Reuters) - Top U.S. and European central bankers on Tuesday called for renewed government spending to support families and businesses as the battle against the coronavirus-triggered recession enters a newly critical phase.

Hopes for new fiscal support in the United States, however, were dealt a serious blow when President Donald Trump abruptly canceled ongoing negotiations with Democrats in the U.S. House of Representatives.

The growth in new COVID-19 cases is again accelerating in parts of the United States and Europe, raising the prospect of new restrictions on commerce even as whole industries and millions of households are still reeling from those imposed in the spring during the first viral wave, and local governments struggle to make up for lost tax revenue.

Those health risks and the possibility of a long "slog" of slow economic growth and elevated joblessness means a "recessionary dynamic" could still take hold in which weak growth feeds on itself through successive rounds of layoffs and business failures, Federal Reserve Chair Jerome Powell told a business conference.

Early action last spring by the U.S. central bank and the passage by Congress of legislation providing trillions of dollars in direct aid to companies and families has prevented the worst outcomes "so far," Powell said.

But "the expansion is still far from complete," and if U.S. officials grow stingy about further help it "would lead to a weak recovery, creating unnecessary hardship for households and businesses," Powell said, while in contrast "the risks of overdoing it seem, for now, to be smaller. 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."

Trump, however, convalescing from his own bout of COVID-19 after a three-day stay in a military hospital outside Washington, said on Twitter on Tuesday that he had "instructed my representatives to stop negotiating until after the election" on Nov. 3.

Stocks, which had been buoyed by ongoing talks between Democratic leaders in Congress and Treasury Secretary Steven Mnuchin, fell sharply.

The outcome of the U.S. negotiations could influence the pace of the global economic recovery as well, and a top European central banker on Tuesday joined the call for more spending now as the risk from the virus persists.

"These weeks are extremely critical not only for the public health issue but also for consumer confidence and investor confidence," said Philip Lane, a member of the European Central Bank's executive board. "We are seeing some resurgence (in the virus) and ... some degree of new restrictions ... In the near term, there's no doubt, it's the case that we need a forceful fiscal response for good macro outcomes."

Both men delivered their remarks online to a meeting of the National Association for Business Economics, bolstering what has now become a staple message from central bankers: Concerns about high public debt levels are currently secondary to keeping households and businesses afloat through the record-setting crash in consumption, investment and jobs sparked by the pandemic.

Bank of Japan Governor Haruhiko Kuroda will address the same conference at 7 p.m. EDT (2300 GMT).

BETTER TOO MUCH THAN TOO LITTLE

At least in the United States, the rebound from the coronavirus crash was, at first, stronger than expected - largely because a variety of U.S. government and Fed programs "substantially muted the normal recessionary dynamics that occur in a downturn," with fewer bankruptcies and fewer permanent layoffs than would have occurred otherwise, Powell said.

The record in Europe has been spottier. Goldman Sachs (NYSE:GS) estimates the U.S. economy will contract 3.5% in 2020, while gross domestic product in the euro area will fall by 7.9% - and nations including France, Italy and Spain could see double-digit declines.

But even in the United States, the pace of recovery "has moderated" from earlier this year, and with that slowing comes the risk "that the rapid initial gains from reopening may transition to a longer-than-expected slog back to full recovery," Powell said.

That sort of prolonged slowing, he warned, could "trigger typical recessionary dynamics as weakness feeds on weakness.

In that situation, he said, officials should risk doing too much for those in need rather than too little, an implicit call on Congress and the Trump administration to aim high in their deliberations over how much more to spend on aid for households and businesses. Markets had expected the talks to lead to another $2 trillion or so in fiscal aid.

The comments mark a slight shift in Powell's analysis of where the U.S. economy stands at a moment when the virus continues to spread and the economy divides between sectors and people doing well and those facing serious trouble. Where his earlier rhetoric focused on building a financial "bridge" to the post-pandemic era, he has now suggested that even a recovery that slips into too low a gear could devolve into a self-fulfilling recession.

"The economy is recovering, but even if we don't have an immediate double-dip recession, if it's just a very, very slow recovery, that itself could be problematic," said Kathy Bostjancic, chief U.S. financial economist with Oxford Economics.

Global central bankers say fiscal aid crucial in new phase of pandemic battle
 

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Comments (34)
George Pichurov
George Pichurov Oct 07, 2020 2:10AM ET
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"To everybody according to his needs, from everybody according to his abilities." FED
rob finch
rob finch Oct 07, 2020 1:03AM ET
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The republicans have no leverage. The democrats don't want to make a deal if they don't have to. Waiting for election results.
Calen Niehoff
Calen Niehoff Oct 07, 2020 1:03AM ET
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They do want to make a deal, thats the sad part. The Cheeto-In-Chief NEEDS a deal to have any chance next month. Thats the difference
George Pichurov
George Pichurov Oct 07, 2020 12:46AM ET
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of course CBs call for more debt. That's what they thrive on.
Jesse Mulliniks
Jesse Mulliniks Oct 06, 2020 11:26PM ET
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End game
Jon Jones
Jon Jones Oct 06, 2020 5:10PM ET
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damn its gonna hurt to sit down for a while
Mojo Snake
Mojo Snake Oct 06, 2020 4:13PM ET
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Ooooohhh  and Trump gives Powell a hard punch to the gut.....that's gotta hurt Gene!!!!!!   Thank god someone is putting a stop to all this stimulus fake money!!!
Semih Coşkan
Semih Coşkan Oct 06, 2020 3:13PM ET
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why u not talk until this time and why u talk marketing time.u not carrier economy. every body buy position for stimulus .really why u didn't say this last week
Space Lord
Space Lord Oct 06, 2020 2:46PM ET
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Why Powell look so bad?
Plopseven Schwartz
Plopseven Schwartz Oct 06, 2020 2:46PM ET
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Probably all the death threats
Alan Rice
Alan Rice Oct 06, 2020 2:39PM ET
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And the PROBLEM with THAT is ....??
Clinton Powell
Clinton Powell Oct 06, 2020 2:32PM ET
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The economy is the state it is in is because of lockdowns, aka the REACTION the US had taken with tegards to the virus. Not because of the virus itself..../ Ask Sweden if their economy is in same state.In addition if you are going to play blame game each givernor is to blame NOT the President remeber when he mentioned he jad authority over the atates the Democrats went bananas.
Plopseven Schwartz
Plopseven Schwartz Oct 06, 2020 2:32PM ET
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America has the most deaths and the worst economic standing BOTH because we have zero leadership. Most countries are one or the other.
Sam Same
Sam Same Oct 06, 2020 2:32PM ET
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Goldman Sachs (NYSE:GS) estimates the U.S. economy will contract 3.5% in 2020, while gross domestic product in the euro area will fall by 7.9% - and nations including France, Italy and Spain could see double-digit declines.Doesn't appear you know how to read.
Hunter Gassaway
Hunter Gassaway Oct 06, 2020 2:18PM ET
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What are the typical recessionary dynamics Powell speaks about in the last sentence?
Mojo Snake
Mojo Snake Oct 06, 2020 1:35PM ET
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The begger in Chief is back at it.  Brother can you spare a dime?  He doesn't understand that any stimulus comes from more debt that we can't ever pay back.  Let the market suffer for awhile it needs the correction.  This guy will be the reason the US becomes a 3rd world country.
Thom Miller
Thom Miller Oct 06, 2020 12:48PM ET
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In the latest poll released, which takes into account part of Trump’s hospital stay, Biden’s lead over Trump has soared to 16 points....57% to 41%. Trump’s low level of 41% reflects likely voters’ fear that Trump’s obesity is starting to take its toll on Trump’s health. Trump saw similar results from a poll conducted by his campaign, which explains why he checked out of the hospital despite continuing to have breathing difficulty while on the Truman balcony last evening. Pulmonary doctors from across the country all said Trump’s breathing was labored.
Thom Miller
Thom Miller Oct 06, 2020 12:48PM ET
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eddie glass Torally untrue. If you could read, Eddie, you would learn the truth.
Chad Olsen
Chad Olsen Oct 06, 2020 12:48PM ET
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Trump isn't gonna have James Comey for his hail Mary this time!
The GOAT
The_Goat Oct 06, 2020 12:44PM ET
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Powell we all know the FED is boxed in from all sides and can't escape
Mark Manley
Mark Manley Oct 06, 2020 12:30PM ET
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More fear mongering from liberal Reuters with terrifying headline that conceals and distorts what Powell actually said, is there a truthful liberal out there somewhere, I think not
Plopseven Schwartz
Plopseven Schwartz Oct 06, 2020 12:30PM ET
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Powell is worth $55 million. Or $500 million more than Trump. You want to take Trump’s bankrupt word over his?
Smart Leo
Smart Leo Oct 06, 2020 12:14PM ET
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His tools achieved pumping stock market and nothing else. Unemployment would have eased as business would take chance of reopening, his tools have nothing to do with it. He has only 2 tools - 0 interest rates, give free loans to bankrupt corporates under bond buying. He couldn't achieve either price stability or unemployment which are his goals but achieved pumping stock market and creating asset bubble, which he is afraid to admit.
DrFunkenstein hayson
DrFunkenstein hayson Oct 06, 2020 11:40AM ET
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end the fed. cut government by 75%
Christine Michaels
Christine Michaels Oct 06, 2020 11:40AM ET
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please explain how that makes sense
Travis Taylor
Travis Taylor Oct 06, 2020 11:40AM ET
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He must be one of those bears that lost all their money when america realized covid wasnt a crisis
Sal Loiacon
Sal Loiacon Oct 06, 2020 11:38AM ET
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Every state needs to open back up. 100%.
Chad Olsen
Chad Olsen Oct 06, 2020 11:38AM ET
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People still won't go out!
Plopseven Schwartz
Plopseven Schwartz Oct 06, 2020 11:34AM ET
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“Turns out our policies have only helped the rich become richer at the expense of everyone else - WHOOPS.”
Alexis Velasquez
Alexis Velasquez Oct 06, 2020 11:32AM ET
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I know right
Gamer Turtle
GamerTurtle Oct 06, 2020 11:30AM ET
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he just needs tell us how many trillion he wants to print for his friends in 2021. lol.
Andrew Lim
Andrew Lim Oct 06, 2020 11:22AM ET
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this market will break new lows
Christoph Hartman
Spider_44 Oct 06, 2020 11:22AM ET
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Doesn't look that way. What reasons do you have? I'm open to anything, but all that's going on points to more sideways to upward recovery in the stock market. I'd be delighted to see another bargain shopping spree, but don't see any reasons for that developing, so far.
Plopseven Schwartz
Plopseven Schwartz Oct 06, 2020 11:22AM ET
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Christoph Hartman Everything is worse now than in March. Tesla sold less cars in 2020 than 2019 and their stock is up 800% on the year. Then look at other bubbles like Peloton up 300%.... This is all liquidity that will work against markets on the way down and make lower lows.
Clinton Powell
Clinton Powell Oct 06, 2020 11:22AM ET
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Sounds rightEven for a guy with a heck of a first name🥺
lee Yuki
lee Yuki Oct 06, 2020 11:21AM ET
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he just wants stocks go down n let Wall Street guys make money again. up down up down repeat over n over again is what they want
Christoph Hartman
Spider_44 Oct 06, 2020 11:21AM ET
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lol, I'm just a average joe and would like to see that too though. Good for trading and making money for everyone who trades
ian jabagt
ian jabagt Oct 06, 2020 11:20AM ET
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So if the ECONOMY is not up to speed. Why the pump? who is benefiting? Americans are going to lose more with your fake Speeches.
Jon kelley
Jon kelley Oct 06, 2020 11:20AM ET
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Hes dum
Tuấn Giang Nguyễn
Tuấn Giang Nguyễn Oct 06, 2020 11:15AM ET
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sell or buy pro???
target tedan
target tedan Oct 06, 2020 11:15AM ET
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need to not trade
 
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