WASHINGTON--Top U.S. and European central bankers on Tuesday called for renewed government spending to support families and businesses as the battle against the coronavirus-triggered recession enters a newly critical phase.
Hopes for new fiscal support in the United States, however, were dealt a serious blow when President Donald Trump abruptly cancelled ongoing negotiations with Democrats in the U.S. House of Representatives.
The growth in new COVID-19 cases is again accelerating in parts of the United States and Europe, raising the prospect of new restrictions on commerce even as whole industries and millions of households are still reeling from those imposed in the spring during the first viral wave, and local governments struggle to make up for lost tax revenue. Those health risks and the possibility of a long "slog" of slow economic growth and elevated joblessness means a "recessionary dynamic" could still take hold in which weak growth feeds on itself through successive rounds of layoffs and business failures, Federal Reserve Chair Jerome Powell told a business conference.
Early action last spring by the U.S. central bank and the passage by Congress of legislation providing trillions of dollars in direct aid to companies and families has prevented the worst outcomes "so far," Powell said.
But "the expansion is still far from complete," and if U.S. officials grow stingy about further help it "would lead to a weak recovery, creating unnecessary hardship for households and businesses," Powell said, while in contrast "the risks of overdoing it seem, for now, to be smaller. Even if policy actions ultimately prove to be greater than needed they will not go to waste. The recovery will be stronger and move faster."
Trump, however, convalescing from his own bout of COVID-19 after a three-day stay in a military hospital outside Washington, said on Twitter on Tuesday that he had "instructed my representatives to stop negotiating until after the election" on Nov. 3. Stocks, which had been buoyed by ongoing talks between Democratic leaders in Congress and Treasury Secretary Steven Mnuchin, fell sharply.
The outcome of the U.S. negotiations could influence the pace of the global economic recovery as well, and a top European central banker on Tuesday joined the call for more spending now as the risk from the virus persists.
"These weeks are extremely critical not only for the public health issue but also for consumer confidence and investor confidence," said Philip Lane, a member of the European Central Bank's executive board. "We are seeing some resurgence (in the virus) and ... some degree of new restrictions ... In the near term, there's no doubt, it's the case that we need a forceful fiscal response for good macro outcomes."
Both men delivered their remarks online to a meeting of the National Association for Business Economics, bolstering what has now become a staple message from central bankers: Concerns about high public debt levels are currently secondary to keeping households and businesses afloat through the record-setting crash in consumption, investment and jobs sparked by the pandemic.