Continued congressional gridlock puts new pressure on Jerome Powell at the Fed

News that General Motors was putting a billion dollars into new Canadian production for its popular pickup trucks was certainly a herald of good news for the Canadian economy.

But as both Canada and the United States decipher Friday's jobs data, fears persist that a disputed U.S. election will act as a drag on the economy on both sides of the border. It was a fear that clearly played on the minds of reporters on Thursday as they questioned Federal Reserve Chair Jerome Powell.

Asked directly about the risk caused by uncertainty over the current U.S. vote, the threat that it could "trigger market turmoil" and what the Fed would do if that happened, the world's most powerful central banker answered firmly.

"I'm very reluctant, as you will imagine, to comment on the election, directly, indirectly, at all, other than to say it is a good time to step back and let the institutions of democracy do their jobs," Powell told a virtual monetary policy news conference.

Flooding the market

While the central banker did not promise further monetary stimulus, he said the Fed would flood the market by buying bonds and mortgage securities "at least at the current pace," and he renewed his promise to hold interest rates low until jobs came back and inflation stabilized above two per cent.

Despite protests that his job was not to advise the government, the Fed chair seemed to be doing just that. He repeatedly came back to the issue of congressional support for more spending, insisting that fiscal support was essential for a speedy recovery from the deep recession caused by the COVID-19 pandemic.

While Powell insisted that the Fed was "not out of ammo" if the economy needed it, there was only so much that a central bank could do on its own to fight an economic crisis that he called "the most severe in our lifetimes."

The Fed was limited to lending, not spending, he said, and could only offer money to solvent businesses that were expected to return it. But many businesses have been reluctant to add more debt that they might not be able to pay back.

"Remember, we've always said this will take a whole of government approach, including health-care policy and fiscal policy, too. So if you want to get the economy back as quickly as possible to where you want it to be, then really it should be all of the government working together," he said.

While Powell seemed pleased by the progress of the economy since the depths of the pandemic-caused recession, he warned that global signs that the coronavirus outbreak would worsen over the winter remained a serious risk for jobs and for the U.S. economy as a whole.

Poor are hardest hit

"Overall economic activity remains well below its level before the pandemic," Powell told reporters. He said that while many jobs have returned, he fears the pace of recovery will slow, leaving the poorest in the lurch.

"The economic downturn has not fallen equally on all Americans, and those least able to shoulder the burden have been hardest hit," he said.

Powell said that one of the reasons for the recovery so far — especially among the poorest — was the initial burst of fiscal spending from Congress that put money in people's pockets and actually allowed many to tuck away savings. But that may be about to change.

"We have been concerned that the downside risks, though, are prevalent now — which are really the risk of the further spread of the disease and also the risk that households will run through the savings they've managed to accumulate," he said.

Many Americans, mostly Democrats, had hoped that the Republican-controlled Senate would "flip" — leading to a Democratic majority and thus making it possible to once again pass spending legislation.

Votes from Tuesday's U.S. election are still being counted, but so far that still looks unlikely, meaning that many of the spending promises from Democrats will once again be trapped in legislative gridlock.

If Democratic presidential candidate Joe Biden eventually takes the White House from President Donald Trump, a Republican, the party's most expansive spending plans for such things as a Green New Deal may be on hold.

But Powell seemed confident that once the post-election confusion settles down, a new fiscal payout to bridge the gap until the pandemic begins to wane and jobs come back would have support from both parties.

In a Washington establishment dominated by partisan squabbling, Powell left the impression of being one of the last adults left in the room. Congress might be wise to take his advice.

Follow Don Pittis: on Twitter: @don_pittis