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Significant Uncertainty: Powell Says Small Businesses At Risk During Recovery

Small Businesses Risk
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EDITOR NOTE: According to Fed Chair Jerome Powell, if you own a small business, if you’re a minority, or if you’re within the lower-income category, your financial risks are greater than most, as the pace of US economic recovery moves forward with “significant uncertainty.” Powell made this statement last Tuesday, a day that saw strong advances across all three US stock indexes. The path to recovery doesn’t rest on our efforts to kickstart the economy, but on “the path of the disease” itself, according to Powell. But who wouldn’t have figured this out, except for those driving the current stock market rally?

Federal Reserve Chairman Jerome Powell warned Tuesday about “significant uncertainty” regarding the pace of the U.S. economic recovery and said small businesses and lower-income and minority Americans are particularly at risk.

During the first day of his semiannual testimony before Congress, Powell told the Senate Banking Committee that while some indicators have shown improvement, there’s still a long way to go as the economy regains its footing from the coronavirus pandemic.

“The levels of output and employment remain far below their pre-pandemic levels, and significant uncertainty remains about the timing and strength of the recovery,” he said in prepared remarks. “Much of that economic uncertainty comes from uncertainty about the path of the disease and the effects of measures to contain it. Until the public is confident that the disease is contained, a full recovery is unlikely.”

The warning was essentially a repeat of cautionary remarks he made last Wednesday following the Federal Open Market Committee meeting that may have contributed to a steep sell-off on Wall Street the following day.

The U.S. entered a recession in February, a month before the World Health Organization declared the coronavirus a pandemic, according to the National Bureau of Economic Research. Unprecedented job losses occurred in March and April, followed by a sharp increase in May that accompanied big gains in retail sales and real estate.

As the nation was shuttered, the Fed and Congress provided unprecedented levels of monetary and fiscal support that included a potential for trillions of dollars in liquidity and lending programs.

‘Heart of our economy’

While noting the strong policy response, Powell said several areas are raising concerns. The Fed’s monetary policy report took note of challenges for small business.

 

“The pandemic is presenting acute risks to small businesses,” Powell said. “If a small or medium-sized business becomes insolvent because the economy recovers too slowly, we lose more than just that business. These businesses are the heart of our economy and often embody the work of generations.”

The Fed on Monday officially started its Main Street lending program, which is geared toward helping smaller firms negotiate the downturn. In addition, the central bank also said Monday that it would start buying individual corporate bonds on top of the exchange-traded funds it already has been purchasing.

But Powell expressed continuing concern that those at the lower end of the income scale are suffering most. He on multiple occasions has said more help may be needed and has stressed that the Fed does not have the ability to give direct cash payments to individuals in the way that Congress can.

“Low-income households have experienced, by far, the sharpest drop in employment, while job losses of African Americans, Hispanics, and women have been greater than that of other groups,” he said. “If not contained and reversed, the downturn could further widen gaps in economic well-being that the long expansion had made some progress in closing.”

As he has in the past, Powell stressed that the Fed will continue to deploy everything in its power to aid the recovery, though he did not mention any potential actions in the future.

Originally posted on CNBC

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