Former Federal Reserve Chairs Ben Bernanke and Janet Yellen called for Congress to provide more fiscal stimulus to the U.S. economy on Friday.
In a hearing before the House Committee for Oversight and Reform’s special committee on the coronavirus crisis, the former top central bank officials spoke about their views on fiscal stimulus. They also laid out their suggestions for policy in a Brookings Institution post on Friday.
Public health spending should be Congress’s priority, they said, followed by an extension of expanded unemployment benefits and the provision of aid to state and local governments.
Officials are hesitant to speak on fiscal matters while serving on the Fed’s Board of Governors, lest they be seen as compromising the central bank’s independence. But Bernanke retired in 2014 and Yellen retired in 2018. Still, the fact that they called for Congressional aid to municipalities may imply that central bank officials see municipal finance as primarily an issue for federal lawmakers, not the Fed.
While the CARES Act directed an additional $600 a week to people collecting unemployment insurance, that benefit is on track to expire at the end of this month.
Some lawmakers expressed concerns about the perceived risks of continuing expanded unemployment insurance. Representatives said that the additional $600 a week of unemployment insurance are likely discouraging Americans from going back to work.
Former Fed Chair Bernanke encouraged policies that would boost employment, such as tying expanded unemployment insurance payments to the national unemployment rate. But he also emphasized the importance of providing adequate support to the unemployed.
“I think both of those things can be done,” he said. “I think it makes a lot of sense to rethink the structure of unemployment insurance and put rewards on the work side, like the earned-income tax credit.”
Former Fed Chair Yellen said “the spending is absolutely needed for more pain not to be extended throughout the economy and for unemployment to continue moving down,” she said.
In response to lawmakers’ questions about the timing and safety of school reopenings, Yellen said “it’s also expensive for schools to make the modifications needed to reopen schools safely.”
Another concern from committee members was that stimulus could widen the budget deficit and hurt the U.S. economy in the future.
“Given how low interest rates are around the world, and that’s not just a monetary policy thing, that’s a global trend …It’s an opportunity to take advantage of our ability to borrow to let the economy recover,” said Bernanke. “As Mario Draghi once said, ‘whatever it takes’ is probably what we need to be thinking now.”
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