WASHINGTON — Federal Reserve officials emphasized the need for ongoing economic support in late July as the coronavirus pandemic dragged on, keeping millions of workers at home and threatening U.S. growth.
“Uncertainty surrounding the economic outlook remained very elevated, with the path of the economy highly dependent on the course of the virus and the public sector’s response to it,” minutes from the central bank’s July 28-29 meeting showed.
The Fed’s meeting came as virus cases staged a resurgence, one that has since leveled off, and before the July labor market report showed that job gains are slowing. It also took place just before government support programs lapsed, including enhanced unemployment benefits that were helping many households to stay afloat as business closures keep them out of work.
The need for additional fiscal policy support — in other words, money from Congress — was a major point of discussion at the meeting, based on the minutes released Wednesday. Fed officials noted it was “uncertain” in the short term whether additional government help would come through, and they pointed out that monetary policy and “particularly fiscal policy” had important roles to play in supporting business activity.
With some stimulus provisions “set to expire shortly against the backdrop of a still-weak labor market, additional fiscal aid would likely be important for supporting vulnerable families, and thus the economy more broadly, in the period ahead,” some participants said, according to the minutes.
The path to reaching some sort of deal to provide another dose of fiscal support remains unclear, even as millions of Americans remain out of work and some businesses continue to struggle. Senate Republicans began circulating the text of a narrow coronavirus relief package on Tuesday, but it is unlikely that Democrats will sign on.
While President Trump has tried to unilaterally extend enhanced unemployment insurance, alongside other measures, his executive orders and memorandum will only offer partial relief that could take weeks to reach consumers. Economists increasingly expect America’s millions of unemployed people to go without the $600-per-week supplement they had been receiving for at least all of August.
That could place more strain on less-advantaged households. Minority workers and those with less education have been more likely to lose jobs to begin with, and Fed officials seemed concerned with how they will fare going forward.
“With lower-wage and service sector jobs disproportionately held by African Americans, Hispanics, and women, these portions of the population were bearing a disproportionate share of the economic hardship caused by the pandemic,” the minutes noted. “Participants noted that the fiscal support initiated in the spring through the CARES Act had been very important in granting some financial relief to millions of families.”
The so-called “CARES Act” provided for an extra $600 in weekly unemployment benefits, student loan and mortgage relief, and small business loans, all of which have helped households and the companies they work for to make it through the pandemic period. But the policies were designed as a short-term solution, and many have either run out or will do so in coming months.
The Fed has taken its own actions to support the economy, but its policies primarily enable growth by making it cheaper to borrow and spend — they do not directly put money in consumers’ and companies’ pockets. That task falls to Congress.
Since the late-July Fed gathering, real-time indicators of consumer spending have continued to muddle along without showing much further improvement, even retreating slightly by some metrics. The stock market, on the other hand, has continued to surge, with key indexes touching new highs.
Central bank staff warned in July that financial vulnerabilities were “notable,” and flagged asset prices. They specifically pointed to commercial real estate prices, which continued to increase even as vacancies ticked up.
And some Fed officials suggested that they are worried about potential risks to financial stability should the coronavirus crisis drag on, the minutes showed.
“Banks and other financial institutions could come under significant stress,” some meeting participants noted, also pointing out that companies have borrowed large sums of money and the government is issuing huge amounts of debt, which could weigh on Treasury market functioning.
“There was general agreement that these institutions, activities, and markets should be monitored closely,” the minutes said, and a “couple” of Fed officials pushed for extended restrictions on bank shareholder payouts, which include dividends, though another argued against such a move.
The Fed has limited dividends without actually halting them.
The Fed has also been reviewing its policy framework — the guiding principles it follows when setting interest rates and other monetary policies — for more than a year. It is widely expected to soon announce that it is scrapping its practice of raising rates pre-emptively in an effort to choke off coming inflation, opting instead for an approach that will allow price increases to run above the official 2 percent goal for a time.
That tweak would leave interest rates lower for longer, keeping borrowing for home-buying and business investment cheap. It would also respond to the reality that inflation has been weak for years, running consistently shy of the central bank’s target for slow but steady price gains. Excessively weak inflation can have bad side effects.
Officials at the meeting said that they should update their long-run statement of policy goals, which describes their approach, and that “it would be important to finalize all changes to the statement in the near future,” the minutes showed.