Powell Warns Central Banks Can’t Stop Recessions on Their Own

Here is today’s Foreign Policy brief: U.S. Federal Reserve Chair Jerome Powell calls for more action to avert a deep recession, fears of a coronavirus return grow in Wuhan, and Niger mounts an anti-Boko Haram operation, killing 75 fighters.

If you would like to receive Morning Brief in your inbox every weekday, please sign up here.

On Wednesday, U.S. Federal Reserve Chairman Jerome Powell warned that the U.S. Congress should use its power of the purse or risk plunging the United States into an even deeper recession. During a speech hosted by the Peterson Institute for International Economics, Powell underlined how knock-on effects from mass unemployment could lead to an even slower recovery.

Powell made that point clearer by highlighting a Fed survey that shows 40 percent of households earning $40,000 or less lost a job in March. At least 20.5 million jobs have been lost so far in the United States according to official figures.

“Additional fiscal support could be costly but worth it if it helps avoid long-term economic damage and leaves us with a stronger recovery,” he said.

What is Congress doing? Congress’s attempt to avert mass unemployment has mostly been in the form of the Paycheck Protection Program (PPP), a $660 billion forgivable loan program for businesses to cover employee wages and other expenses. The PPP was replenished with $310 billion in late April after rapid uptake from businesses, but last week the Wall Street Journal reported that 40 percent of the funds were still unclaimed.

House Democrats have attempted to provide the stimulus Powell has called for by unveiling a $3 trillion bill for further economic relief on Tuesday. Senate Majority Leader Mitch McConnell has already declared it dead on arrival, arguing that the bill does not “deal with reality.”

“This is not a time for aspirational legislation, this is a time for practical response to the coronavirus pandemic,” McConnell said.

Don’t just protect paychecks, write the checks. A practical response to unemployment is available and has proved successful in Europe: a government-backed wage guarantee for the duration of the crisis. (For an in-depth comparison of the European model and the U.S. model, read the comparison—by FP’s Michael Hirsh and Keith Johnson—here.)

According to Politico, Congressional Progressive Caucus leader Pramila Jayapal pushed for a “Paycheck Guarantee” program akin to what countries in Europe have implemented but was rejected by senior Democrats, who wanted to focus more on expanding existing tax credits. Hamilton Nolan, a labor reporter with In These Times, summed up the frustration among progressives. “The Great Depression was not staved off by a few targeted tax credits,” he wrote.

How central banks got their teeth? On Wednesday, FP columnist Adam Tooze gave a comprehensive overview of how central banks have morphed from guardians of inflation into the guarantors of basic economic functioning. “Central banks, with the Fed leading the way, have taken it on themselves to act as a comprehensive backstop to the financial system,” Tooze wrote. “First in 1987 following the global stock market crash, then after the dot-com crash of the 1990s, even more dramatically in 2008, and now on a truly unprecedented scale in response to COVID-19. Liquidity provision is the slogan under which central banks now backstop the entire financial system on a near-permanent basis.”

Mass testing ordered in Wuhan amid fears of second wave. Roughly 1,000 residents in the Qiaokou district of Wuhan are to be tested for the coronavirus as city officials fear the virus could be returning only a month after Hubei province relaxed lockdown protocols.

There are conflicting reports in Chinese media surrounding how much more new testing will be done in the city, with some outlets reporting that all residents would need to be tested in the next 10 days. District officials confirmed to the Associated Press that Wuhan’s coronavirus task force has put in mass orders for testing kits.

WHO says virus may never go away. The World Health Organization has warned that the coronavirus may never fully be eradicated, and instead become endemic, like HIV and measles. Michael Ryan, the executive director of the WHO Health Emergencies Program, made the remarks as part of online briefing on Wednesday.

“I think it is important we are realistic and I don’t think anyone can predict when this disease will disappear,” Ryan said. “I think there are no promises in this and there are no dates. This disease may settle into a long problem, or it may not be.” Ryan added that even if a vaccine is found it may not spell the end for the coronavirus, citing the measles vaccine and the continued presence of measles worldwide.

Niger says 75 Boko Haram fighters killed. Niger’s defense ministry said it had killed 75 Boko Haram insurgents during operations conducted earlier in the week in the border region between Niger, Nigeria, and Chad. Niger’s military said the assault was in retaliation for Boko Haram attacks on military positions near the town of Diffa in the country’s southeast. On Tuesday, Babar Baloch, a spokesperson for the United Nations’ Refugee Agency, said that violence across the border in Nigeria had forced 23,000 refugees to flee to Niger in April alone. It brings the total number of Nigerians taking refuge in Niger to over 60,000.

Renewed Hong Kong protests. Protesters defied coronavirus restrictions and filled almost a dozen shopping malls across Hong Kong on Wednesday to demonstrate against the government, in a sign its protest movement is gathering steam after a pandemic-induced lull. Many of the protests, made to coincide with the birthday of Hong Kong leader Carrie Lam, were broken up by police using pepper spray, some of which hit nearby journalists. The protests follow major mall demonstrations on Sunday, when roughly 200 people were arrested for unlawful assembly.

The protests come as Hong Kong ended a 23-day run of no new coronavirus cases, as a 66-year-old woman from the Tsuen Wan neighborhood with no recent travel history was diagnosed with COVID-19 on Wednesday. The case is unrelated to the mass gatherings, as the woman had come down with a fever last Friday.

Coronavirus antibodies found in few Spaniards. Spain’s health ministry gave preliminary results in a nationwide coronavirus anti-body test that suggests around one in twenty citizens have antibodies in their system. If accurate, it would mean 2.3 million people have been exposed to the virus, rather than the 230,000 already reported. “We have not been surprised” by the results of the study, Health Minister Salvador Illa said. “There is no herd immunity in Spain.” The study, which tested 60,000 people, showed that 11.3 percent of the population Madrid had antibodies, more than twice the national average.

As one of the jurisdictions worst affected by the coronavirus pandemic globally, the city of New York has had more than its fair share of bad news over the past few weeks. Lockdown measures have produced one sliver of good news though: New York has not had a single pedestrian death for the longest period since 1983 (when records began). Polly Trottenberg, the New York City transportation commissioner, said the city has now gone 58 days without a pedestrian dying from being struck by a vehicle.

New York Mayor Bill de Blasio is looking to make the empty streets that have produced this statistic permanent, with a plan to free up 100 miles of New York city’s roadways to bicycles and pedestrians to create space for social distancing in the cramped city. The move follows a trend of cities increasing space for bicycles and pedestrians already announced in Berlin, Paris, and London.

That’s it for today.

For more from FP, visit foreignpolicy.com, subscribe here, or sign up for our other newsletters. Send your tips, comments, questions, or corrections to morningbrief@foreignpolicy.com.