Former Fed heads argue aid is needed to avoid 'prolonged suffering'

Former Federal Reserve Chairs Ben Bernanke and Janet Yellen signed a letter with 130 top economists urging Congress to pass additional coronavirus relief measures in order to prevent "prolonged suffering and stunted economic growth."

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"Insufficiently bold congressional policy responses to the Great Recession unnecessarily prolonged suffering and stunted economic growth," the letter said. "Congress should not make this mistake again."

The letter, addressed to top lawmakers in the House and Senate, was published on Tuesday by the Washington Center for Equitable Growth, a Washington-based think tank. Notable signatories include several Nobel Laureate winners, Alan Blinder, a Princeton University economist, and two former chairs of the Council of Economic Advisers, Austan Goolsbee and Jason Furman, under President Barack Obama.

"Policymakers in Congress and the Federal Reserve responded to this crisis with unprecedented levels of economic support for those affected, but more needs to be done," the authors wrote. If the federal government does not pass additional aid, the economists warned that unemployment could remain as high as 11 percent at the end of the year.

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Since the U.S. economy came to a grinding halt to slow the spread of COVID-19, roughly one in five workers has lost their job, a rate unseen since the Great Depression. In the span of three months, unemployment went from the lowest level in 50 years to the highest rate in 80 years.

The job losses are concentrated heavily among low earners: Almost 40 percent of individuals who earn less than $40,000 lost their job in March, according to Federal Reserve research,

The group of economists also warned that the virus outbreak and the recession it caused would be "especially damaging" to communities of color, given that black, Latino and Native American people are dying and losing their jobs at a greater pace compared to their white counterparts.

"Over the past 30 years, black Americans have consistently faced unemployment rates twice as high as those for white Americans and are particularly hard hit during economic downturns," they wrote. "Evidence from the Great Recession indicates that a prolonged economic downturn will seriously damage the economic opportunities and wealth accumulation of all Americans, but especially of families of color."

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The economists did not provide specific policy measures, but it suggested that another robust aid package is needed to protect workers, companies and the economy from the pandemic fallout. That could include "at minimum" continued support for the unemployed, new assistance to state and local governments, investments in programs that preserve the employee-employer relationship and additional aid to stabilize aggregate demand.

So far, Congress has passed three massive stimulus packages totaling nearly $3 trillion to blunt the economic pain from the virus outbreak. Republicans and Democrats largely agree that another round of aid is necessary, but are divided on specific measures.

Some options currently under consideration at the White House include a payroll tax cut, liability protections for businesses reopening during the outbreak, tax deductions or write-offs for individuals who take a vacation during a defined period of time, and a back-to-work bonus for unemployed Americans returning to their jobs.

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House Democrats, meanwhile, passed the $3 trillion HEROES Act in May, which includes another $1,200 payment for some Americans and extends the extra $600-a-week in unemployment benefits through at least the end of January.

Federal Reserve Chairman Jerome Powell has previously suggested the federal government may need to do more to offset the pain of the crisis.

"We're doing a fair job of getting through these first few months," Powell said last week. "The question is, however, what about people who can't go back to work? And that could be many millions of people. They're going to need possibly, probably, further support. It's possible that we will need to do more and it's possible that Congress will need to do more."

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