What the Fed is afraid of?
Asked for the main issues of concern as the world struggles to recover from the Covid-19 crisis, Jerome Powell said it «the risk of longer-term damage to the productive capacity of the economy and the lives of people affected by the crisis».
«It is women who do not voluntarily drop out of the labor market, ”Powell continued. – These are children who do not receive proper education. Small enterprises with intellectual capital reserves are being destroyed. And these are ordinary workers who do not work for a long time, lose jobs and lose their former life.».
Most of the economic data has been strong lately, especially in terms of employment. Nonfarm pay growth in October was better than Wall Street’s expectations. About 12 million workers returned to their jobs after 22 million layoffs in March and April. The Labor Department said Thursday that weekly jobless claims fell last week to their lowest level since March..
However, some economists fear that a slowdown in growth may come from an increase in coronavirus cases and government restrictions on doing business and personal work..
Powell warned laid-off workers will need expanded support as the US economy recovers differently.
«We’re not going back to the old economy, ”Powell said. – We are recovering, but in a different economy, which will be more dependent on technology. I am afraid this will become even more difficult for many workers.».
The head of the central bank said what exactly he means «relatively low-paid civil servants who bear this burden», many of whom are women and minorities.
The growing trend towards automation and working from home exacerbates problems, Powell says, which means policymakers will have to be more flexible..
His comments came in connection with the fact that Washington lawmakers have not yet agreed on additional financial assistance for 11 million Americans, many of whom are victims of the pandemic, who are left without work..
Powell said he expects additional policy assistance from both the Fed and Congress will be required..
«These people will struggle to get back to their old job or, in many cases, get a new job. So I think you will see more remote work, you will probably see automation speed up. All this already was in progress, but you will see much more», – he said.
«The main takeaway I have made is that even after the unemployment rate drops and the vaccine is available, there is likely to be a sizable group of workers who will need support until they find their way into the post-pandemic economy because in some fundamental relationships will be different», – added Powell.
Pfizer Announces Successful Covid-19 Vaccine This Week «definitely good and long awaited news», he said though «it is too early to assess with any certainty the consequences of this news for economic development, especially in the near future».
US stocks tumbled on Thursday following Powell’s sobering comments. The Dow closed 1.1%, or 317 points, lower, while the broader S&The P 500 fell 1%. High-tech Nasdaq Composite closes 0.7% lower.