"A long way to go": Fed chair warns economy will feel the weight of expired stimulus

Treasury Secretary Steven Mnuchin and Fed Chair Jay Powell bump elbows before House hearing on Tuesday. Photo: Joshua Roberts/Pool/AFP via Getty Images

Federal Reserve Chairman Jerome Powell told the House Financial Services Committee on Tuesday that the expiration of Congress' coronavirus stimulus will weigh on the U.S. economy.

Why it matters: Powell warned that the effects of dried-up benefits are a looming risk to the economy, even if the consequences aren't yet visible.

  • A number of measures passed in the CARES Act — including an extra $600 in unemployment benefits — have expired or run out, with no replacements in sight.
  • Congress remains deadlocked over additional economic stimulus, and the looming Senate fight over Supreme Court Justice Ruth Bader Ginsburg's replacement is likely to keep the stimulus on the back-burner through November.

What he's saying: "What's happened lately is that the economy has proved resilient, both to the broader spread of the [coronavirus] … and also to the expiration of the CARES Act benefits," Powell said.

  • But while the economy tries to recover from the pandemic's pummeling, Powell said the economy will eventually feel the negative effects of these measures expiring. "We don't know which of those two forces will dominate."

One major risk: Unemployed Americans over time go through their savings because they haven't yet found a job — without a financial cushion to fall back on.

  • "Their spending will decline … and so the economy will begin to feel those negative effects at some time," Powell said.

The big picture: Data shows the economy and labor markets have improved since the onset of the pandemic. Still, 11 million more people remain unemployed compared to before the coronavirus hit.

  • "That's a long way to go" for recovery, Powell said.
  • He said the recovery "will go faster if it's all government working together" — a nod for Congress to step up and pass another stimulus package.

Yes, but: While Powell noted most economic forecasters, including the Fed, anticipate more congressional aid, he didn't specify how big of a fiscal package the Fed was expecting.

  • Treasury Secretary Steven Mnuchin, who testified alongside Powell, told Congress that a targeted stimulus package is necessary.

Go deeper: The price of Washington's stimulus failure

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