US economy may face extended period of weak growth: Fed chief

Washington

FEDERAL Reserve chairman Jerome Powell, in a sober review of where the US economy stands on the cusp of its reopening, said on Wednesday that the country could face an "extended period" of weak growth and stagnant incomes. He pledged to use more Fed power as needed and issued a call for more fiscal spending.

For a central banker who spent part of his career as a deficit hawk and has tried to avoid giving advice to elected officials, the remarks marked an extraordinary nod to the risks the US economy is facing from the combined health and economic crisis brought on by the coronavirus pandemic.

The United States response to date "has been particularly swift and forceful," Mr Powell said in a webcast.

"But the recovery may take some time to gather momentum" and be dictated by progress fighting the coronavirus pandemic, he said.

The longer those health risks persist, he added, the more likely businesses will fail and households will be strapped for income in a downturn, which he noted has fallen most heavily on those least able to cope.

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He noted that a recent Fed survey estimated that 40 per cent of households with less than US$40,000 in income included someone who has lost a job since February.

The worst-case outcome leaves the economy mired in "an extended period of low-productivity growth and stagnant incomes . . . Additional fiscal support could be costly but worth it if it helps avoid long-term economic damage and leaves us with a stronger recovery", he said in what amounted to a direct call for Congress to add to the nearly US$3 trillion it has allocated for economic relief during the pandemic struggle.

"This tradeoff is one for our elected representatives, who wield powers of taxation and spending."

The US House of Representatives and Senate are deliberating further responses to the crisis. White House officials have said they want to assess how an initial round of economic reopenings by states go before deciding what to do.

But in remarks webcast by the Peterson Institute for International Economics, Mr Powell mapped out a series of uncertainties that will dictate what happens - including how quickly the virus is controlled and how fast overall confidence returns.

His appearances since the beginning of the pandemic have forced the Fed into a series of emergency actions starting, which have been aimed largely at reassuring people that the US central bank would use its power to keep their finances afloat, and to explain the programmes it had designed to do so. He repeated that pledge of further action on Wednesday. REUTERS