Fed Chairman Jerome Powell has delicately but resolutely said in recent months he expects Congress will need to do more to compensate for income losses sustained by unemployed workers and revenue holes facing hard-hit businesses and city and state governments because of the coronavirus pandemic, the Wall Street Journal reported. Some colleagues have been more outspoken. “Trouble is brewing with the expiration of these relief policies,” Chicago Fed President Charles Evans told reporters in early August after temporary federal unemployment benefits lapsed. A month later, after little congressional progress on a new financial assistance package, Evans cited partisan politics as a threat to the economy. “A lack of action or an inadequate one presents a very significant downside risk to the economy today,” he said. Fed officials are eager for a fiscal booster shot for two reasons. The first reflects the limits of their tools that became apparent well before the pandemic-induced downturn. The second stems from the unique nature of the current shock. Officials will wrestle at their two-day meeting that concludes Wednesday with how to put meat on the bones of their new average inflation framework. The changes were a response to a deficiency in their old framework, which failed to account for more frequent and extended episodes at the so-called lower bound, where interest rates can’t be lowered once falling to near zero. If the central bank targets 2 percent inflation and consistently falls short once rates are pinned that low, expectations of future inflation can slide, causing inflation and rates to stay low. The new policy tries to break this vicious cycle by seeking somewhat higher periods of inflation after periods of below-target inflation.
