As Powell and Mnuchin make their latest appearance on Capitol Hill, Wall Street is becoming increasingly convinced that no more stimulus is coming. Markets have been down the past three weeks, in part on pessimism about a deal on more stimulus. Meanwhile, a little more than half of the 22 million payroll jobs lost in March and April have not returned, and state and local governments are staring down massive budget shortfalls. Health officials and economists fear that the upcoming flu season could slow the pace of the recovery.
Yet, in other slices of the economy, the rebound is happening faster than expected. Household spending looks to have recovered about 75 percent of its earlier decline, Powell noted, aided by federal stimulus payments and expanded unemployment benefits.
The housing market has rebounded, and Fed leaders are growing more optimistic about where the unemployment rate will fall in the years to come. In prepared remarks, Mnuchin said he expects “tremendous third-quarter growth, fueled by strong retail sales, housing starts and existing-home sales, manufacturing growth, and increased business activity.”
For months, Powell has said that more aid will likely be needed from Congress, which can send stimulus straight to households, businesses and local governments. Apart from its vast moves to prop up the markets, Fed can only lend to companies and municipalities, and its programs to do so have been bumpy and seen little uptake.
Meanwhile, the House and Senate are at odds over government funding before it runs out at the end of September, triggering a shutdown. And since the death of Supreme Court Justice Ruth Bader Ginsburg last week, much of Capitol Hill has been focused on the upcoming nomination battle.
Still, Mnuchin said he believes “a targeted package is still needed,” and that the White House was ready to reach a bipartisan deal.
“A full recovery is likely to come only when people are confident that it is safe to reengage in a broad range of activities,” Powell wrote in prepared testimony. “The path forward will depend on keeping the virus under control, and on policy actions taken at all levels of government.”
Powell and Mnuchin will also testify on the Cares Act on Thursday morning before the Senate Banking Committee.