U.S. Federal Reserve Rattles Stock Markets With Call For More Fiscal Stimulus

The U.S. Federal Reserve called Wednesday for more fiscal stimulus to help sustain the COVID-19 economic recovery, even as Congress seems unable to deliver a new aid package.

Fed Chairman Jerome Powell vigorously waved the fiscal flag at a congressional hearing, saying that more government support is necessary. The comments came as a political stalemate in Washington, D.C. intensified over a new round of fiscal stimulus, with Democrats and Republicans unable to find common ground on new measures to help citizens.

The S&P 500 stock index fell 2.4% on the Fed comments, the biggest drop since September 8 and the fifth decrease in six days, a sign that investors are becoming more downbeat on prospects for stimulus once seen as a near-certainty.

Declines in the stock market, until recently attributed to a reversal of excessive technology share gains, have increasingly been attributed to worries about the economic recovery and the need for more government stimulus.

Democrats and Republicans have been at loggerheads over another virus relief package, with no formal negotiations since early August. Chances of aid faded further after Friday’s death of Justice Ruth Bader Ginsburg put the fight over a Supreme Court seat at center stage, moving stimulus talks to the background.

In new economic forecasts released September 16, Fed officials had a median projection for unemployment at 7.6% next quarter, down from the 8.4% recorded in August, with a further drop to 5.5% at the end of 2021.