President Donald Trump is hoping the economy will bounce back rapidly from the coronavirus shutdown, but Federal Reserve Chair Jerome Powell warned Wednesday that it will take time for the country’s wounds to heal even after businesses begin to reopen.
After the Fed pledged to keep interest rates near zero until the economy has weathered the pandemic, Powell underscored the bleak reality, saying next week’s monthly jobs report is expected to show an unemployment rate somewhere in the double digits.
“We’re going to see economic data for the second quarter that’s worse than any data we’ve seen for the economy," he said during a news conference.
And though he said there could be a burst of economic growth once stay-at-home restrictions are lifted, he added: "It’s unlikely that it would bring us quickly all the way back to pre-crisis levels.”
It's up to the Fed, the Trump administration and Congress to prevent long-lasting damage to the economy from mass layoffs and shuttered businesses, he said. “The economy may need more support from all of us if the recovery is to be a robust one," he said.
The Fed chief’s comments suggest the U.S. economy could face a rocky path for at least the next year as it attempts to rebuild. The Commerce Department reported earlier in the day that the GDP contracted from January to March at a rate that, if sustained for a year, would shrink the economy by 4.8 percent. The second quarter of the year, a period that accounts for the full force of the pandemic shutdown, is expected to be considerably worse.
Trump, who has described himself as a "cheerleader for the country," has relentlessly stressed the economy's prospects for growth, urging governors in many states to reopen businesses.
"Once we OPEN UP OUR GREAT COUNTRY, and it will be sooner rather than later, the horror of the Invisible Enemy, except for those that sadly lost a family member or friend, must be quickly forgotten," he tweeted earlier this month. "Our Economy will BOOM, perhaps like never before!!!"
But Powell said that after the economy begins to reopen, there is a potential danger of new outbreaks. He also said people will probably be cautious “for some time” about going back to doing all of the activities they used to do.
“You would think behavior will change as people gain confidence, so the sooner we get the virus under control, the sooner people can regain that confidence and regain our economic activity,” he said, adding it was “very tough” to estimate when that might happen.
Powell promised the Fed would use every tool at its disposal to keep the economy afloat. He also issued an unusually direct call for Congress to do more to prevent long-lasting damage, saying lawmakers should set aside fears about ballooning federal deficits to do what is necessary to combat the virus.
“This is the time to use the great fiscal power of the United States to do what we can to support the economy,” he said.
“The time will come again, and reasonably soon, I think where we can think about a long-term way to get the fiscal house in order, and we absolutely need to do that,” he said. “But in my personal view, this is not the time to let that concern, which is a very serious concern, to let that get in the way of us winning this battle.”
Powell faced a number of questions about the Fed’s emergency lending programs for large corporations and midsize businesses, key pillars of the government‘s economic rescue that have yet to begin.
The lending facilities for big companies are “near being finalized and will be operating, I would say, soon.”
As for the so-called Main Street facility, under which the Fed will buy loans from banks to companies with less than 10,000 employees, Powell said that would begin partial operation “fairly quickly.”
“This is a broad area of the economy with many different kinds of credit needs, so we’re going to keep at that for some time, adding in sectors and lending products,” he said.
Trump, for his part, is undeterred in his optimism for a strong recovery.
"I'm seeing it. I feel it," he said Wednesday at a roundtable with industry executives on reopening the economy "I've felt a lot of things over the years, including, 'Gee I think I can win for president.' You know? And frankly I really feel that next year's going to a very good year economically."
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As Trump talks rebound, Fed’s Powell warns economy's pain will last - POLITICO
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