But they offered contrasting views of how best to buttress the economy: Mr. Powell suggested that more fiscal support to states and businesses might be needed to avoid permanent job losses. Mr. Mnuchin suggested that without an expeditious reopening, the economy might never fully recover. Here are key highlights from their testimony.
Mr. Mnuchin warned that the economy might sustain “permanent damage” if states extend their shutdowns for months.
Mr. Powell warned that the economy could face long-term damage if the policy response was not forceful enough and reiterated that the economy might need more help to make it through the pandemic without lasting scars. But he was careful to avoid giving Congress explicit advice and made sure to cushion his suggestions as a conditionality.
Mr. Powell suggested that the central bank might expand its program to buy municipal debt and agreed that state and local governments could slow the economic recovery if they laid off workers amid budget crunches.
Mr. Mnuchin, who previously said he expected that Treasury would return all $454 billion from Congress, changed that benchmark on Tuesday, saying the “base case” now was that the government would lose money.
“Our intention is that we expect to take some losses on these facilities,” he said. Some lawmakers have been pressing Treasury and the Fed to deploy their capital aggressively and not worry about taking losses.
Mr. Powell said even after states reopened, a full recovery would not come until the health crisis was resolved.
“The No. 1 thing, of course, is people believing that it’s safe to go back to work. And that’s about having a sensible, thoughtful reopening of the economy, something that we all want — and something that we’re in the early stages of now,” he said. “It will be a combination of getting the virus under control, development of therapeutics, development of a vaccine.”
Those comments were underscored by new economic projections released Tuesday by the nonpartisan Congressional Budget Office, which suggested the recovery would depend in large part on the virus’s trajectory. The budget office projected that gross domestic product would contract by 11 percent in the second quarter and the jobless rate would hit 15 percent, with industries such as travel, hospitality and retail bearing the brunt of the losses.
“The range of uncertainty about social distancing, as well as its effects on economic activity and implications for the economic recovery over the next two years, is especially large,” the report noted, adding that “future waves could be smaller, of a similar size or larger than the initial wave experienced this spring.”
Reference: New York Times
