Jerome Powell must perform a high-stakes balancing act this week when he’s expected to urge U.S. lawmakers to back more spending for an economy reeling from the impact of the coronavirus pandemic.
The Federal Reserve chairman is scheduled to appear via video conference along with Treasury Secretary Steven Mnuchin before the Senate Banking Committee at 10:00 a.m. ET on Tuesday. They’re testifying on the US$2.2-trillion virus rescue package passed by the Congress in March.
The trick for Powell will be to make his case delicately, not overstepping his role as an unelected central banker and not appearing to take sides in the partisan battle over how much more Washington should do. Overplaying his hand could hurt the credibility of the Fed. Failing to argue persuasively may contribute to insufficient additional support and even deeper economic harm.
“Everything is risky for him right now, but not doing it is risky,” said Julia Coronado, president of MacroPolicy Perspectives. “He’s got to instill a sense of urgency in the Senate.”
Republicans have defended their reluctance to swiftly provide more aid say Powell has not specified the need is imminent. Senate majority leader Mitch McConnell told Fox News on Thursday the Fed chief didn’t say how quickly more money was required, giving lawmakers time to judge the impact of what has already been done.
Meanwhile Mnuchin’s key role will be as a cheerleader for the recovery. His views may contrast with Powell, whose role is to provide a more frank assessment of the economy, even if the message is gloomy.
The Treasury boss’s job will be to defend his boss’ economy a mere five months before President Donald Trump vies for re-election. So far, while Mnuchin has conceded that there will be some “very, very bad quarters,” he has said that by “next year, we’ll be back to having a great economy just like we had before.”
Mnuchin will also face the heat for some failings of his rapidly executed stimulus programs. Some economic impact payments were sent to the deceased. And US$669 billion in aid to small businesses was plagued with glitches, with money going to public companies and private schools serving wealthy families, while mom-and-pop firms faced website crashes and muddled rules for obtaining the funds.
Coronado, like other Fed watchers, predicted Powell will mainly rely on the economic data. Despite record federal support already approved by Congress, and a host of emergency Fed lending programs now or soon to be operating, the economy is looking more crippled with each week.
More than 36 million Americans have lost their jobs since February. Countless companies, especially small businesses, are hurtling toward bankruptcy, while states and cities are confronting gaping budget shortfalls that could provoke a massive second wave of layoffs from the public sector.
The news keeps getting grimmer. Government data on Friday showed U.S. retail sales plunging in April, shattering the prior record set just a month earlier, as the virus shuttered businesses and kept Americans at home.
Powell has already been clear about the limits of Fed lending and remarkably outspoken on the likely need for more fiscal action. In a May 13 webinar hosted by the Peterson Institute for International Economics, he made an argument he’s likely to repeat this week.
“The recovery may take some time to gather momentum, and the passage of time can turn liquidity problems into solvency problems,” he said. “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 was also asked during a press conference April 29, if concerns about mounting government debt should make Congress pause over its next move. His answer was unequivocal.
‘Not the Time’
“This is not the time to act on those concerns,” he said. “This is the time to use the great fiscal power of the U.S.”
Democratic Senators at the hearing are likely to ask Powell to repeat those remarks. House Speaker Nancy Pelosi already pounced on Powell’s words to cast him as supportive of the Democrats’ proposal for a new US$3-trillion relief bill.
Republicans have dismissed that package as a left-wing wish list stuffed with unnecessary extras unrelated to the current crisis and begun raising alarms over the deficit. Trump has also said he’s in “no rush” for a new stimulus.
That could put Powell — who was picked to lead the central bank by Trump — in an awkward position if he comes across as falling too hard on the side of Democrats. But he’s well positioned to take that risk.
Powell has worked hard since becoming Fed chair at building strong relationships on Capitol Hill on both sides of the aisle, an effort that could help him avoid being painted as partisan. The Fed’s fast actions at the outset of the crisis have also lent the central bank some newfound public support that may help.
A Gallup Poll in April, just as the Fed was responding aggressively to the sudden slowdown, showed public confidence in the Fed chair was at its highest since Alan Greenspan was in charge 15 years ago.
“His approval ratings are getting better and better,” said Carl Tannenbaum, chief economist at Northern Trust Corp. “He’s leveraging that new standing to be much more forceful.”
Still, Powell will know when to stop, said William English, an economics professor at Yale University and a former senior official at the Fed.
“He’s already clearly on the record saying the situation is pretty bad and they’ll probably have to do more,” English said. “But he’ll stay away from saying what exactly they have to do.”
In other words, he won’t endorse any dollar amounts, or say where Congress should direct the aid.
He will also, Coronado predicted, make it clear that spending taxpayer money is not his job. That power lies with Congress.
“He’ll tell them, if you want to sit there and do nothing when we’re looking at the greatest disruption to the economy any of us has ever seen, that truly is up to the Senate,” she said.
Trudeau to offer premiers billions to help reopen the economy safely – CTV News
Prime Minister Justin Trudeau is to offer premiers billions in federal funding to help them safely reopen provincial and territorial economies without triggering an explosive second wave of COVID-19 cases.
Trudeau is expected to present the offer to premiers during their weekly conference call today — the twelfth such call since the pandemic sent the country into lockdown in mid-March.
Precise details, including how to allocate each province’s share of the cash, are to be negotiated in the coming days, but federal officials hope agreements can be reached quickly to get the money flowing fast.
The offer comes with some strings attached, according to federal officials who spoke on condition of anonymity because they were not authorized to discuss it publicly.
Trudeau is offering to transfer the money to provincial and territorial governments, provided they agree to spend it on a number of areas the federal government considers necessary to reduce the risk of a second surge of the deadly coronavirus.
They include testing, contact tracing, personal protective equipment, bolstering municipalities, helping the most vulnerable Canadians and strengthening the health care system, possibly including improving conditions in long-term care homes linked to more than 80 per cent of the deaths in Canada so far.
Making a difference in just one of those areas — municipalities — is a pricey proposition. The Federation of Canadian Municipalities estimates communities across the country, which have been on the front lines of the pandemic, need $10-15 billion to make up for the loss of revenue resulting from reduced transit fares, user fees and deferred property taxes.
At the start of the pandemic, the federal government boosted transfer payments to provinces and territories for health care by $500 million — an amount that seemed large at the time but which has since paled in comparison with the more than $150 billion Ottawa has shovelled into direct financial aid to Canadians and economic stimulus measures.
While Trudeau is now offering provinces and territories substantially more money, there is likely to be some push back from some premiers over his attempt to direct the general areas on which it should be spent rather than letting them spend it as they see fit.
The prime minister is also expected to announce financial support for nearly four million disabled Canadians, who already faced some of the highest costs of living before the pandemic made daily life even more expensive.
Among other things, the pandemic has resulted in many people with disabilities having to rely on in-home care, pay delivery fees for groceries and other items, and fork out higher dispensing fees for prescription drugs.
This report by The Canadian Press was first published June 5, 2020.
BoC eyeing supply, consumer demand for July economic outlook, deputy says – BNNBloomberg.ca
OTTAWA — A senior official at the Bank of Canada says the central bank will be paying close attention to what the post-pandemic economy can supply and what consumers demand.
Deputy governor Toni Gravelle said Thursday it’s possible that supply could recover faster than demand if businesses reopen quickly while consumers remain cautious.
In a speech by video conference to the Greater Sudbury Chamber of Commerce, he said it will be key for the bank’s governing council to understand how the pandemic has affected demand, employment and the economy’s capacity to produce goods and services by its next interest rate decision in mid-July.
At that time, the bank will also release an updated economic outlook.
The Bank of Canada held its key policy rate at 0.25 per cent on Wednesday, but said the economy appears to have avoided a worst-case scenario due to the COVID-19 pandemic.
Gravelle made clear that’s as low as the bank believes the rate can go before it causes problems in markets, a nod toward talk about negative interest rates to spur spending.
The bank also reduced some of its market operations after it “cranked up the volume to 11” to allow the banking system to tap directly into much-needed funding liquidity, Gravelle said.
“Despite the positive signs, though, many risks and uncertainties remain,” Gravelle said, according to a text of his speech released by the bank.
“A lot will depend on whether we as a country are successful in managing the risk of possible future waves of COVID-19, and the pace at which containment measures are lifted. This applies to the global economy as well as Canada’s.”
He said the bank will pay close attention to how the pandemic is affecting growth and demand in key markets for Canadian exports.
Statistics Canada said the domestic economy shrank by 2.1 per cent in the first three months of the year. The Bank of Canada now expects output to drop a further 10 to 20 per cent in the second quarter, which is below its April expectations of a 15 to 30 per cent drop.
As bad as that sounds, Gravelle said, it would be closer to the best-case scenario the bank envisioned in April.
Gravelle pointed in his speech to silver linings in otherwise gloomy economic data.
Statistics Canada jobs figures showed that three million workers became unemployed over March and April as the pandemic took hold, but 43 per cent said they expected to return to their jobs once the pandemic passes. Gravelle said that figure was 15 per cent during the global financial crisis over a decade ago.
“These are all sort of subtle indications,” he said during a media teleconference following the speech.
“It was just more of a hopeful sign that the attachment rate of these employees will be stronger in this crisis or this environment than it was in 2008-2009.”
Inflation has dropped close to zero, driven mainly by plunging gasoline prices, and Gravelle said inflation will remain below the bank’s two per cent target in the near-term due to temporary factors.
Despite the positive tone of the speech, it’s clear no one at the central bank is breathing a sigh of relief just yet, said TD senior economist Brian DePratto.
“The multiple references to its ability to provide further stimulus, and the reiterated goal of keeping asset purchases running until the bank is certain the economic recovery is well underway make it clear that the foot will be firmly on the accelerator for some time to come,” he wrote in a note.
How does Canada save its economy? | The Star – Toronto Star
Canada’s economic numbers are staggering, for all the wrong reasons. In the span of two months, more than three million Canadians have lost their jobs and another 2.5 million have had their work hours reduced. Unemployment has soared to 13 per cent as businesses and corporations have taken on mass layoffs.
A record number of Canadians are turning to government aid to keep their families and businesses afloat. Meanwhile, the GDP is shrinking at a record rate, at levels unseen in more than a decade. Many economists say a plunge of this severity is comparable to the Great Depression of the 1930s. In short: Canada, along with many parts of the world, have seen its economies devastated during the pandemic.
But where is the bottom? Have we seen the worst of it or is there more bad news to come?
Jim Stanford, economist and director of the Centre for Future Work, talks to Adrian Cheung about the big picture of Canada’s economy, why re-opening too quickly could lead to further disaster and ideas on how we can begin recovering financially from this mess.
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