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Fed Chair Says Economic Recovery May ‘Stretch’ Through End of 2021 Fed Chair Says Economic Recovery May ‘Stretch’ Through End of 2021
(about 7 hours later)
Jerome H. Powell, the Federal Reserve chairman, said that while he expected the United States economy to recover from the sharp and painful downturn brought about by the coronavirus, that process would take time — potentially until the end of 2021. Jerome H. Powell, the Federal Reserve chair, said that the United States would have a slow recovery from what he called the “biggest shock that the economy’s had in living memory,” suggesting that a full rebound from virus-induced lockdowns could take until the end of 2021.
“This economy will recover; it may take a while,” Mr. Powell said in a preview of the CBS program “60 Minutes” that aired Sunday morning. “It may take a period of time, it could stretch through the end of next year, we don’t really know.” In an interview on “60 Minutes,” the CBS program, Mr. Powell reiterated that both Congress and the central bank may need to do more to help workers and businesses make it through the sudden and sharp slump caused by efforts to contain the coronavirus.
The Fed has rushed to insulate the economy as coronavirus lockdowns caused a steep drop in growth, leaving more than 20 million people jobless. The question is whether the central bank’s actions will be sufficient if it takes a long time for the economy to fully reopen, leaving businesses short on income for an extended period and increasing the risk that many will close. “This economy will recover; it may take a while,” Mr. Powell said. “It may take a period of time, it could stretch through the end of next year, we really don't know.”
Asked whether the economy could recover without an effective vaccine, Mr. Powell suggested that activity could restart before a treatment became available without making a complete rebound. The Fed has rushed to insulate the economy as coronavirus lockdowns caused business activity to come to near standstill, leaving more than 20 million people jobless. But it remains an open question whether the central bank’s actions will be sufficient if it takes a long time for the economy to fully reopen, leaving businesses short on income for an extended period and increasing the risk that many will close.
Mr. Powell has begun warning that lawmakers and the White House may need to do more to support households and businesses if the virus persists.
In his “60 Minutes” appearance, broadcast and streamed into millions of American homes, Mr. Powell reiterated that shepherding the economy through the darkest days of the coronavirus lockdown may require more policy action and suggested the recovery would not be seamless. Asked whether the economy could heal without an effective vaccine, Mr. Powell suggested that activity could restart before a treatment became available without making a complete rebound.
“Assuming that there’s not a second wave of the coronavirus, I think you’ll see the economy recover steadily through the second half of this year,” he said. “For the economy to fully recover, people will have to be fully confident, and that may have to await the arrival of a vaccine.”“Assuming that there’s not a second wave of the coronavirus, I think you’ll see the economy recover steadily through the second half of this year,” he said. “For the economy to fully recover, people will have to be fully confident, and that may have to await the arrival of a vaccine.”
The interview with Mr. Powell, which CBS said was taped on May 13, followed a blunt speech that the Fed chair delivered that same day in which he warned that the economy may need more financial support in order to prevent permanent job losses and waves of bankruptcies. Mr. Powell pointed specifically to parts of the economy where people are in close contact — such as live events — as areas that might struggle to pick up before better protection is available.
Fed officials have slashed interest rates to zero, purchased bonds at a record pace to restore order to roiled government bond markets and unveiled a series of emergency lending programs in partnership with the Treasury Department. But those programs can only offer solvent companies debts that they must pay back, which may not be enough for companies facing a monthslong dry spell. “Those parts of the economy will be challenged until people feel really safe again,” he said. “Lots of the rest of the economy, though, can move ahead. But we can’t fully recover because those other parts of the economy matter.”
“There is a sense, a growing sense I think, that the recovery will come more slowly than we would like,” Mr. Powell said during the speech at the Peterson Institute for International Economics, in which he noted that “the scope and speed of this downturn are without modern precedent, significantly worse than any recession since World War II.” The Fed chair suggested that the worst economic readings were yet to come, even as states begin to gradually reopen. He said that he expected “a couple more months” of job losses and acknowledged that the unemployment rate, which hit 14.7 percent in April, could peak at 20 percent or even 25 percent. He said that as the economy contracts in the second quarter, it could “easily” fall by 20 percent or 30 percent on an annual basis.
Mr. Powell tried to strike a more optimistic tone in his television interview, saying that while “you really can’t put into words the pain people are feeling,” in the longer term “you wouldn’t want to bet against the American economy.” The interview, which CBS said was taped on May 13, followed a blunt speech that the Fed chair delivered that same day in which he warned that the economy may need more fiscal help to prevent permanent job losses and waves of bankruptcies.
The Fed chair’s full interview will air on Sunday night. “I was really calling out a risk that I think is an important one for people to be cognizant of, and that is the risk of longer-run damage to the economy,” Mr. Powell said of that May 13 speech, acknowledging that “part” of his point was to send Capitol Hill a signal that the economy would need more assistance.
Mr. Powell suggested that appropriate government policy could “buy time” for workers and companies, and that government efforts may need to span “maybe three or six more months.”
“It may well be that the Fed has to do more,” he said. “It may be that Congress has to do more. And the reason we’ve got to do more is to avoid longer-run damage to the economy.”
While he was careful to avoid giving lawmakers specific advice, Mr. Powell said policymakers should focus on keeping people in their homes, ensuring they can pay their bills and helping companies avoid insolvencies brought about by the lockdown. Asked whether state and local governments needed more congressional assistance, he pointed out that many provided crucial services and were required to balance their budgets, so such a policy “deserves a careful look.”
The House on Friday narrowly passed a $3 trillion pandemic relief package that would send aid to state and local governments and another round of direct $1,200 payments to taxpayers. The proposal, which includes Democratic priorities including the temporary suspension of a limit on the deduction of state and local taxes from federal income taxes, has no chance of becoming law amid Republican opposition.
Republicans and the White House have alternately sounded open to additional rounds of support and hesitant to spend more money given the trillions already being pumped into the economy.
While fiscal policy can provide more direct assistance to households and businesses, Mr. Powell said the central bank was “not out of ammunition by a long shot.”
Fed officials have slashed interest rates to zero, purchased bonds at a record pace to restore order to roiled government bond markets and unveiled a series of emergency lending programs in partnership with the Treasury Department.
Mr. Powell said there was “really no limit” to what they could do with their emergency lending facilities, which allow them to extend credit to help keep markets functioning normally so that businesses and households can borrow money even during tumultuous periods.
The Fed could enlarge its already announced programs, start new ones or change its asset purchase strategy, Mr. Powell said. Analysts have speculated that the central bank will eventually transition its current bond purchase program, intended to soothe trading conditions, into one that is meant to bolster the economy.
“The one thing I can absolutely guarantee is that the Federal Reserve will be doing everything we can to support the people we serve,” Mr. Powell said. “And that means providing some relief and stability now. It means supporting the recovery when it comes.”
Like his predecessor, Ben Bernanke, who appeared on “60 Minutes” in the depths of the 2007-09 recession to send a reassuring message to Americans, Mr. Powell sounded hopeful that the United States would ultimately return to its former prosperity.
He said that the current downturn would not be a repeat of the Great Depression of the 1930s, just as Mr. Bernanke did when asked the same question in 2009.
“We’ll get through this,” Mr. Powell said. “The main thing is, once we start on the road to recovery, is to stay on that road and just do everything we can to stay on it for a long period of time.”