‘Until the public is confident that the disease is contained, a full recovery is unlikely,’ Federal Reserve Chairman Jerome Powell said in testimony presented to the Senate Banking Committee.
Photo: kevin lamarque/ReutersWASHINGTON—Federal Reserve Chairman Jerome Powell said the economy faces significant long-term damage from higher unemployment and a wave of small business failures due to the coronavirus pandemic, despite recent signs of improvement.
“Until the public is confident that the disease is contained, a full recovery is unlikely,” Mr. Powell said in testimony presented to the Senate Banking Committee Tuesday, at the start of two days of congressional hearings.
Mr. Powell also warned that because recent job losses to contain the spread of infection have fallen hardest on low-income workers, minorities and women, the current downturn risked broadening disparities in living standards between the rich and poor.
“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,” Mr. Powell said.
Congress faces looming deadlines over how to address temporary relief for businesses and unemployed workers that expires this summer, following nearly $3 trillion in emergency spending and other funds.
Mr. Powell’s comments about the economic outlook suggest the central bank sees a need for more direct aid to avoid elevated joblessness and a cascade of bankruptcies.
“The longer the downturn lasts, the greater the potential for longer-term damage from permanent job loss and business closures,” he said. Direct support from funds approved by elected officials “can make a critical difference not just in helping families and businesses in a time of need, but also in limiting long-lasting damage to our economy.”
Mr. Powell’s prepared remarks on monetary policy didn’t offer new insights on the central bank’s deliberations over how to structure more support once the recovery accelerates now that interest rates have been cut to near zero. The Fed has taken unprecedented steps during the current crisis to lend to businesses, cities and states through a range of emergency lending programs.
“Our actions are only part of a broader public-sector response,” Mr. Powell said.
Fed officials last week projected they would hold interest rates near zero at least through 2022.
The Fed will keep interest rates near zero “until we are confident that the economy has weathered recent events and is on track to achieve our maximum-employment and price-stability goals,” Mr. Powell said Tuesday.
Inflation has fallen in recent months, and Mr. Powell said he expected prices to remain below the central bank’s 2% target “for some time.”
Write to Nick Timiraos at nick.timiraos@wsj.com
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