A failure by Congress to pass another coronavirus relief measure may damage the economy, a top Federal Reserve official said Wednesday.
“Apart from the course of the virus itself, the most significant downside risk to my outlook would be the failure of additional fiscal support to materialize,” said Fed Gov. Lael Brainard in a speech to the UK-based Society of Professional Economists annual conference.
“Too little support would lead to a slower and weaker recovery,” she added.
Brainard is the only remaining Fed governor who was appointed by President Barack Obama. Speculation has picked up recently that she could be offered a top job if Vice President Joe Biden wins the presidential election on Nov.3.
With its benchmark policy interest rate close to zero, Fed officials think fiscal support is the best medicine for the economy.
Fed Chairman Jerome Powell said earlier this month that there was a greater risk to Congress from doing too little than doing too much.
Talks of a roughly $2 trillion stimulus package continue between Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin.
White House Chief of Staff Mark Meadows said Tuesday afternoon that the talks would continue because they were making some progress.
Senate Republicans are split over whether to support another fiscal stimulus measure. Senate Majority Leader Mitch McConnell has urged Trump not to support any stimulus legislation until after the election.
In her remarks, Brainard said she was concerned that the recent improvements in the labor market was likely to slow. She noted that the number of permanent job losers has been rising.
“Targeted” support from Congress could turn the “uneven” recovery into a “broad-based” recovery, Brainard said. Many U.S. households are “cash-constrained,” she said.
“With unemployment and reduced hours likely to persist, many of these households are unlikely to be able to sustain recent levels of consumption without additional fiscal support as well as extended loan forbearance and eviction moratoriums,” she said.
The financial security of displaced workers will depend importantly on whether unemployment benefits will be extended or supplemented – and if this will occur before any remaining savings accrued from earlier coronavirus relief, is exhausted, she added.
Dow futures struggled for direction ahead of the fiscal stimulus talks. The Dow Jones Industrial Average
rose 113.37 to finish at 28,308.79 on Tuesday.