Fed Chair Jerome Powell warns an extended shutdown could damage the economy

Jim Puzzanghera, Los Angeles Times on

Published in Business News

WASHINGTON -- Federal Reserve Chairman Jerome H. Powell warned on Thursday that an extended partial government shutdown could damage the U.S. economy and starve the central bank of key data it needs to make monetary policy decisions.

"If we have an extended shutdown, I do think that would show up in the data pretty clearly," Powell said during an appearance at the Economic Club of Washington.

About one-quarter of the federal government has been shut down since Dec. 22 because of a dispute over $5.7 billion in funding President Trump is seeking from Congress to build a wall on the U.S. border with Mexico.

The dispute is showing no signs of ending after Trump walked out of a Wednesday negotiating session with lawmakers after Democratic leaders would not agree to his demand for the wall funding.

Powell said past government shutdowns had not caused serious economic damage because they didn't last long.

"If government shutdowns don't last very long, they have typically not left much of a mark on the economy," he said. "There's plenty of personal hardship that people undergo, but the aggregate level of the economy generally doesn't reflect much damage."

About 800,000 federal workers are affected by the shutdown, and many will miss their first paychecks on Friday.

But a longer shutdown would start to cause damage to the economy. Mark Zandi, chief economist at Moody's Analytics, has predicted that a partial shutdown that lasts through the end of this month would shave from one-tenth to two-tenths of a percentage point from total first-quarter economic growth.

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One of the agencies shut down is the Commerce Department, which produces some important economic reports. The shutdown already has delayed the release of the monthly foreign trade statistics, which were due out on Tuesday.

If the shutdown lasts through this month, more key data on U.S. economic growth, consumer spending and personal income also will not be released.

Powell said that would be a problem for Fed officials as they tried to assess the state of the economy to decide on interest rate policy.

"We would have a less clear picture into the economy if it were to go on much longer," Powell said of the shutdown.

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