US Federal Reserve Chair Jerome Powell told Americans yesterday progress in controlling the spread of the coronavirus would determine when the economy reopens but assured them the Fed was taking every action to support a vigorous rebound when it comes.
In a rare network television interview on NBC’s Today Show, Powell said the United States ‘may well be in recession’ but that confidence would return once the virus was under control.
Powell spoke just about an hour before federal data showed a record-breaking spike of unemployment claims to 3.28mn, evidence that “social distancing” to fight the pandemic has taken hold, but may also have ended the country’s more than decade-long economic expansion.
His choice of venue — a network morning show when many Americans are homebound and paying close attention — was itself part of a message that seemed meant to prepare people for the dismal economic data to come, counsel patience in any rush back to work, and reassure that the Fed would act “aggressively” to keep firms and families afloat.
“We are not experts in pandemic... We would tend to listen to the experts. Dr Fauci said something like the virus is going to set the timetable, and that sounds right to me,” Powell said, in reference to Anthony Fauci, head of the National Institute of Allergy and Infectious Diseases who is on the White House’s coronavirus task force. “The first order of business will be to get the spread of the virus under control and then resume economic activity.”
The US central bank chief’s remarks are a contrast to the urging by some of President Donald Trump’s advisers for a faster reopening.
The president himself has said he wants the economy to be “roaring” by Easter, in a little over two weeks.
The Fed officials who have spoken to the issue, now including Powell, have taken a more sombre approach, focusing on the need to first control the virus, then restore confidence among workers and consumers that it is safe to go back to business.
Powell used the television appearance, outside the confines of the news shows or economic conferences where Fed chairs typically appear, to enforce that message and take what for a central banker is the unusual step of acknowledging the economy may be contracting even before economic data fully confirms it.
As a rule of thumb, a recession is a period when the economy’s overall level of output, or gross domestic product, contracts for two consecutive three-month quarters.
However the definition used by the National Bureau of Economic Research’s Business Cycle Dating Committee, the group that determines when such periods begin and end, is far more flexible — and even a sharp downturn over a month or two may not qualify if the rebound is quick and sustained.
Equity markets have rallied in recent days as a mammoth programme of economic aid has moved through Congress, with more than $2tn rolled out in payments to families and help for companies.
Still the current situation is so unusual Fed policymakers have become atypically blunt.
As with the unemployment claims, upcoming reports are expected to show such large jumps in joblessness and lost output that their focus has shifted from downplaying the depth of the problem and toward ensuring businesses and households get through the period with their finances intact.
A deliberate choice to close stores in the name of public health, Powell said, “is not a typical downturn...There is nothing fundamentally wrong with our economy.”
Indeed the aim of the trillions of dollars in lending and bond purchases the Fed has authorised over the past two weeks is precisely to let an otherwise healthy economy pause long enough to keep people safe, Powell said, before what could be a strong rebound later in the year.
He said the central bank would lend “aggressively” to ensure that happens, with an expected commitment of more than $440bn from the US Treasury allowing the Fed to unleash perhaps $4tn for credit to “Main Street.”
“The sooner we get through this period and get the virus under control, the sooner the recovery can come...We know that economic activity will decline probably substantially in the second quarter but I think many expect and I would expect economic activity to resume and move back up in the second half of the year,” Powell said.
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