Fed leaders are worried about uncertainty in the economy, pandemic and aid from Congress
WASHINGTON - Federal Reserve officials focused on uncertainty surrounding the American economy, and the long-term risks for struggling businesses and households, in their July policy meeting, underscoring recent calls for more help from Congress and a broad-based effort to get the pandemic under control.
When the Fed's top policymakers gathered on July 28 and 29, officials discussed a slew of worrisome scenarios and noted that relief from the Cares Act was set to expire "against the backdrop of a still-weak labor market," according to meeting minutes released Wednesday.
"Some participants observed that, due to the nature of the shock that the U.S. economy was experiencing, strong fiscal policy support would be necessary to encourage expeditious improvements in labor market conditions," the minutes read.
In July, the Fed kept interest rates near zero, as expected. In a news conference after the meeting, Federal Reserve Chair Jerome Powell warned that a rise in infections from earlier in the summer was beginning to weigh on the economy.
The meeting minutes don't identify individual opinions from participating Fed policymakers. But they do offer a window into top-level discussions by officials who play a leading role in steering the economy out of one of the worst recessions since the Great Depression.
If the pandemic worsens and the recession persists, Fed officials said banks and other lenders could tighten conditions in credit markets and "restrain the availability of credit to households and businesses," according to the minutes. Meeting participants also talked about businesses facing supply chain issues, the challenges of reopening and closing and employee absenteeism, with particular strain felt by small businesses.
"Participants generally agreed that actions of consumers and businesses in taking steps to slow the spread of the virus, along with developments in public health, would be critical in ensuring a durable reopening of businesses," according to the minutes.
After the meeting, Powell said during his news conference that some measures of consumer spending, based on debit and credit card use, had moved down since late June. Hotel occupancy rates had flattened out, Powell said, and Americans weren't going to restaurants, gas stations and beauty salons as much as they had earlier in the summer. At the time, Powell emphasized that it was too soon to tell how long the drag on the economy would last.
The July jobs report, released after the Fed's policy meeting, showed that the jobless rate had fallen to 10.2% and that the economy added 1.8 million jobs that month. But economists feared that the federal jobs figure didn't fully capture ongoing business closures and the economic toll of rising infections.
August is also posing new challenges as schools reopen or are forced to close. And some parents are up decisions of whether to go back to work or stay home with their children.
Meanwhile, Congress still has not reached a deal on another wave of aid. The federal government's $600 in weekly enhanced unemployment benefits expired for close to 30 million unemployed Americans at the end of July. In the meeting minutes, Fed officials noted that low-wage and service-sector workers, many of them laid-off women and workers of color, have been left to bear "a disproportionate share of the economic hardship caused by the pandemic."
Powell and his colleagues have said the Fed will press on with its vast measures to shore up the economy for as long as it takes. But since the July meeting, a growing number of Fed leaders have sharpened their calls for more help from Congress, insisting the Fed cannot be the only game in town.
Chicago Fed President Charles Evans recently told reporters that "the ball is in Congress' court." Richmond Fed President Thomas Barkin said that "quickly pulling away the support that consumers and businesses are receiving would be a pretty traumatic move for what's happening in the economy."
"We're still in a position where we could use significant fiscal policy until the pandemic's under control," Boston Fed President Eric Rosengren told Marketplace this week.
Meeting minutes released Wednesday did not point to any firm conclusions around how the Fed should be using its other policy tools, like forward guidance and asset purchases. Economists are awaiting the release of the central bank's long-term monetary policy review, which could change the way the Fed approaches its inflation target. At his July news conference, Powell said the Fed would "wrap up our deliberations in the near future."