The Covid-19 pandemic brought the economy to a screeching halt, and while it has started its long road to recovery, the economy we knew is probably a thing of the past, said Federal Reserve Chairman Jerome Powell on Thursday.
“We’re recovering, but to a different economy,” Powell said during a virtual panel discussion at the European Central Bank’s Forum on Central Banking.
The pandemic has accelerated existing trends in the economy and society, including the increasing use of technology, telework and automation, he said. This will have lasting effects on how people live and work.
While technological advances are generally positive for societies over the long term, Powell said, on a short-term basis they create disruption, and as the market adjusts to the new normal the pain isn’t shared evenly.
For example, it’s likely that lower-paid workers, as well as those in jobs requiring face-to-face interactions, such as retail or restaurant workers, will shoulder most of the burden of this shift. These groups, heavily skewed towards women and minorities, have already been among those most affected by pandemic layoffs, Powell said.
The post-pandemic economy is also at risk of being less productive: women have been forced to quit their jobs due to child care responsibilities during the crisis, and children aren’t getting the education they deserve, Powell said.
Generally speaking, inequality holds the economy back, the central banker said.
“Even after the unemployment rate goes down and there’s a vaccine, there’s going to be a probably substantial group of workers who are going to need support as they’re finding their way in the post-pandemic economy, because it’s going to be different in some fundamental ways,” Powell said.
Washington has spent trillions of dollars to boost the economy in the wake of the pandemic. But jobless workers are still in a tough spot: some benefits have already dwindled and more are set to expire at year-end. Economists are hopeful that the next administration will manage to pass another stimulus bill to help workers and businesses as the recovery continues.
More work needs to be done
Powell has long said that the economy might need more stimulus from both the government and the central bank to get through the crisis. He again echoed this sentiment on Thursday.
“My sense is that we will need to do more and that Congress will need to do more,” he said.
While the prospect of a vaccine is goods news, many questions remain, including the resurgence of the virus around the world.
“The main risk we see today […] is the further spread of disease here in the United States,” he said. Several states have restarted their pandemic restrictions to curb the spread.
US stocks weakened following Powell’s sobering comments. The market had lately been rallying on vaccine hopes.
The Dow (INDU) closed 1.1%, or 317 points, lower, while the broader S&P 500 (SPX) fell 1%. The tech-heavy Nasdaq Composite (COMP) finished 0.7% lower.