(Reuters) – 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 canceled 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