Jerome Powell has emphasised that more fiscal stimulus is needed. But he seems in no rush to try unconventional policy tools
think that central banking is a sort of macroeconomic engineering—tweaking an interest rate here or a financial regulation there. But psychology enters into it, too. In order to achieve strong growth, people need to spend today as if the health of tomorrow’s economy were assured. That makes communication critical. Early on Jerome Powell, the chairman of America’s Federal Reserve, showed signs of an aptitude for managing collective confidence.
In fact the early Powell years proved surprisingly good. The economic expansion he had inherited stretched into the longest on record. By early 2020 America’s unemployment rate had sunk to 3.5%, the lowest level in half a century. In 2018 the central bank launched a review of its tools and communications, which included “Fed Listens”, a series of public events. These ran the risk of being little more than a public-relations exercise.
The nature of the covid-19 downturn is now changing. The first steps towards reopening helped the economy claw back some of the enormous output losses sustained between February and May. But the early rebound masks a grim long-run outlook. Although employment jumped by nearly 5m in June, an astounding rise, the level is still nearly 15m below that in February. The number of permanent job losers rose by nearly 600,000. Forecasts have become gloomier.
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