Coronavirus: US faces severe crisis, but not depression, Fed chief Powell says
- World’s biggest economy could ‘easily’ collapse by 20 to 30 per cent this quarter, US Fed chief says
- More than 36 million Americans have lost their jobs since February as the economy shuttered to limit virus spread
Federal Reserve Chair Jerome Powell expressed optimism that the US economy can begin to recover from a devastating recession in the second half of the year, assuming the coronavirus doesn’t erupt in a second wave. But he suggested that a full recovery won’t likely be possible before the arrival of a vaccine.
In an interview with CBS’s 60 Minutes on Sunday, Powell noted that the economy was fundamentally healthy before the virus struck suddenly and forced widespread business shutdowns and tens of millions of lay-offs. Once the outbreak has been contained, he said, the economy should be able to rebound “substantially”.
Powell offered an overall positive message while warning that it would take much longer for the US economy to regain its health than it took for it to collapse with stunning speed.
More than 36 million Americans have lost their jobs since February as the economy shuttered to limit virus spread. Countless companies, especially small businesses, are hurtling toward bankruptcy, while states and cities are confronting gaping budget shortfalls that could provoke a massive second wave of lay-offs from the public sector. The unemployment rate, at 14.7 per cent, is the highest since the Great Depression, and is widely expected to go much higher.
But the Fed chief said people should never “bet” against the American economy and firmly played down suggestions that it faced a second Great Depression.
Trump’s bet on jobs unravels on America’s worst slump since Great Depression
“In the long run, and even in the medium run,” the chairman said. “You wouldn’t want to bet against the American economy. This economy will recover. And that means people will go back to work. Unemployment will get back down. We’ll get through this.”
While acknowledging that US economy could “easily” collapse by 20 to 30 per cent this quarter, and unemployment could peak at 20 to 25 per cent, he noted that US banks were far healthier now and that the Fed and other central banks are much more able and willing to intervene to bolster economies than they were in the 1930s.
To limit the harm, Powell and his colleagues have slashed interest rates to zero, flooded financial markets with trillions of dollars in liquidity, and unveiled nine emergency lending facilities to keep credit flowing in the economy.
Some investors have bet the Fed may be pushed to follow other central banks in adopting negative interest rates, which President Donald Trump has repeatedly called for in the US.
Trump slammed for putting name on coronavirus relief cheques
But Fed officials including Powell have consistently batted this idea away, and he did so again on Sunday.
“There’s no clear finding that it actually does support economic activity on net,” he said. “And it introduces distortions into the financial system, which I think offset that.”
Powell’s remarks follow his grave warning last Wednesday that the US economy faces lasting harm from the pandemic if the government doesn’t step up. The comments add support to calls for more congressional spending as Democrats push for a fresh US$3 trillion in virus aid on top of a record US$2.2 trillion package agreed in March. On Friday, the House passed the measure, though it has no future in the Republican-led Senate.
Global downturn likely to be worst since Great Depression, IMF says
Powell pointed out that the downturn wasn’t a result of deep-seated financial instabilities, like the housing meltdown and the excessive risk-taking among banks that ignited the Great Recession. Rather, it resulted from an external event – a pandemic – that required a shutdown of the economy. That may mean, he said, that “we can get back to a healthy economy fairly quickly”.
But how quick is an unknown right now. A recovery “could stretch through the end of next year,” he said. And a vaccine would likely be necessary for Americans to feel safe enough to return to their normal economic behaviour of shopping, travelling, eating out and congregating in large groups – activities that fuel much of the economy’s growth. Most health experts have said that a vaccine won’t be ready for use for 12 to 18 months at least.
Coronavirus: inside the global race to prevent another depression
“Certain parts of the economy will find it very difficult to have really a lot of activity,” Powell said. “The parts that involve people being in the same place, very close together. Those parts of the economy will be challenged until people feel really safe again.”
On Sunday, the United States also recorded its lowest daily death toll in a week, at 820, but the country with the world’s highest number of coronavirus fatalities neared 90,000 dead.
Associated Press, Bloomberg, Agence France-Presse
