Wednesday, September 22, 2021

in-focus

Fed leaders more optimistic on jobs, GDP growth at final 2020 policy meeting


WASHINGTON - Federal Reserve leaders are more optimistic about jobs and growth than at any point in the pandemic, yet critical holes in the recovery remain, and filling them may hinge on a stimulus deal and the rollout of a coronavirus vaccine.

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At a news conference after the Fed's final policy meeting of 2020, Fed Chair Jerome Powell said the central bank was not out of tools to support the recovery, and could expand its asset purchases. But for sectors that are far from healed - such as restaurants and hotels that rely on person-to-person contact - "those are not being held back by financial conditions, but rather by the spread of the virus," Powell said.

Powell reiterated his calls for more help from Congress, saying "the case for fiscal policy right now is very, very strong."

Powell declined to point to what specifically should go into another stimulus bill. On Wednesday, congressional leaders neared an agreement on a roughly $900 billion relief package after months of partisan gridlock. The bill probably will include direct payments but leave out aid to state and local governments.

"All of these government policies are trying to work together to create a bridge across this economic chasm that was created by the pandemic," Powell said. "But there is a group where they don't have a bridge yet."

In their latest round of economic predictions since September, Fed leaders predict that unemployment will fall to 5% by the end of next year, and 4.2% by the end of 2022. Officials also showed a more hopeful outlook for gross domestic product. In September, Fed leaders projected that GDP would grow 4% by the end of 2021, but they revised those estimates to suggest growth of 4.2%.

Yet there are signs the economic recovery is slowing. November marked the slowest month of job growth since the spring, with the unemployment rate falling slightly from 6.9% to 6.7%. Retail sales fell last month. Millions of Americans are behind on rent and utility bills, and nearly 8 million Americans have fallen into poverty since the summer.

"The path of the economy will depend significantly on the course of the virus," the Fed said in a statement after the meeting. "The ongoing public health crisis will continue to weigh on economic activity, employment, and inflation in the near term, and poses considerable risks to the economic outlook over the medium term."

The Fed is capping one of its most consequential years, one that involved an unprecedented response to the economic damage wrought by a global pandemic. This week also marks the Fed's final policy meeting before the Biden administration begins, bringing with it a slate of new economic advisers.

A key question is what will happen to the Fed's emergency lending programs, jointly run by the Fed and the Treasury Department. The facilities have become a test for how policymakers rate the strength of the recovery.

Saying the programs did their jobs, Treasury Secretary Steven Mnuchin last month announced that he would not extend most of facilities beyond the end of the year. Mnuchin also requested that the Fed return hundreds of billions of dollars that had been allocated for the programs under the Cares Act but never spent, saying the money could be reallocated by Congress for more direct use.

Mnuchin's decision spurred a rare public clash between the Treasury and the Fed, which wanted the programs to stay in place as a backstop to the markets in case the recovery faltered. Democrats and many economists criticized Mnuchin's move, saying it was premature to cut off the support.

The future of those programs could depend on the views of Janet Yellen, President-elect Joe Biden's nominee for treasury secretary. Democrats have called for a reboot to the programs, while Republicans have said they should end.

Asked whether the Fed consider roll out more facilities if economic conditions turned south, Powell said "we do not have any plans for the future about this. We're very focused on getting through year end." Powell said that he had not discussed policy issues with Yellen, but that he did congratulate her on her nomination.

Published : December 17, 2020

By : The Washington Post · Rachel Siegel