Fed chair warns of economic tragedy if America can’t control the coronavirus

FILE - In this March 3, 2020 file photo, Federal Reserve Chair Jerome Powell speaks during a news conference to discuss an announcement from the Federal Open Market Committee, in Washington. Federal Reserve officials are grappling this week with the timing and scope of their next policy moves at a time when the raging viral pandemic has weakened the U.S. economy. No major changes are likely when the Fed releases a statement Wednesday, July 29, after its two-day policy meeting ends and just before Powell holds a news conference. (AP Photo/Jacquelyn Martin, File)

(CNN) — America is on the long road to economic recovery from the pandemic recession, but dark clouds remain on the horizon.

One major risk to the economy is that a renewed rise in infections might again “more significantly limit economic activity, not to mention the tragic effects on lives and well-being,” said Federal Reserve Chairman Jerome Powell Tuesday at the National Association for Business Economics annual meeting.

“Managing this risk as the expansion continues will require following medical experts’ guidance, including using masks and social-distancing measures,” he said.

Powell reiterated his calls for more fiscal stimulus, aimed at supporting America’s most vulnerable. He said the risks of Congress pouring too much stimulus into the economy are far lower than the risk of not doing enough. Stimulus negotiations have been in gridlock for months.

Even though government spending is adding to an already sky-high federal budget, lawmakers should act, Powell argued.

“The US federal budget is on an unsustainable path, has been for some time,” Powell said. But “this is not the time to give priority to those concerns.”

The pace of the recovery has slowed recently. For example, after adding more than a million jobs every month between May and August, last week’s September jobs reported showed only 661,000 jobs were added back to the economy, fewer than expected.

A prolonged slowing of the recovery is bad news, Powell said, “as weakness feeds on weakness.”

At the end of the day, unemployment and bankruptcies will always be part of the economy. But having an “inappropriate” amount of either is bad for the longer-term outlook.

For example, the number of permanent layoffs has been rising after a lot of workers were initially classified has having temporarily lost their jobs.

“Once you’re permanently laid off it’s just difficult to get back into the workforce,” Powell said.