Fed chief Powell: Prolonged shutdown will harm US economy

Federal Reserve Chairman Jerome Powell said Thursday that the partial government shutdown could hinder the U.S. economy and the central bank’s ability to keep it stable.

Powell said at the Economic Club of Washington, D.C., that a prolonged shutdown may harm the world’s largest economy beyond the financial hardship facing hundreds of thousands of furloughed and “essential” federal workers who are expected to go without a paycheck this week.

{mosads}The Fed chief said that while shutdowns “typically don’t last very long,” an extended shutdown “would show up in the data pretty clearly.”

Powell’s comments came on the 20th day of the shutdown with no apparent progress toward a deal between President Trump and congressional Democrats.

The shutdown is expected to break the record for the longest in U.S. history, and affected workers on Friday will miss their first paycheck since funding for about 25 percent of the federal government expired on Dec. 22.

The hit to personal finances could in turn result in missed mortgage payments and a failure to meet other debt payment deadlines, though Congress is expected to approve back pay for affected federal employees as part of any legislation to end the shutdown.

Still, it’s unclear whether Congress will extended the same benefits to thousands of federal contractors whose work is tied to the shuttered agencies.

The White House Council of Economic Advisers said each week of the shutdown will cost the U.S. economy roughly $1 billion.

Powell said it’s difficult to gauge the full economic impact of the shutdown since one of the central bank’s major sources of data, the Commerce Department, is shuttered.

The Fed is independently funded through fees paid by banks, so it will remain open during the shutdown. But the central bank will be deprived of important economic data until Trump and Democrats reach a funding deal.

The Fed relies on a wide range of data from the Commerce Department, including GDP, price increases, wage growth, retail sales and international trade metrics. That leaves the central bank without a slew of important indicators that shape monetary and financial regulatory policy.

The lack of crucial data is the latest challenge for the Fed as it attempts to make sense of a confounding global economic picture. While U.S. employment, GDP and wage increases are all relatively strong, slowing global growth and rising political tensions have spurred major volatility in financial markets.

Powell said Thursday that he saw no signs of an impending global recession, but expressed fears that economic hardship in China and emerging markets could weigh on the U.S.