Powell’s Warning to Congress About the Next Recession

Federal Reserve Chair Jerome Powell had a message for Congress in his testimony Wednesday before the Joint Economic Committee: The Fed won’t be able to fight the next recession all by itself — it’s going to need help from Congress.

There is no escaping the fact that unless the U.S.’s economic conditions change substantially, the Fed will not be able to cut interest rates enough to significantly mitigate (let alone turn around) a major recession.

As Powell noted, during a downturn the Fed has historically cut interest rates by about five percentage points. Currently interest rates are at 1.75%.

In theory, that gap could be made up through fiscal stimulus — that is, by the federal government either cutting taxes or increasing spending. In practice, this will prove to be almost impossible.

It is Congress that would have to pass a stimulus, and politicians have sharp disagreements over taxes and spending

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