Federal Reserve Board Chairman Jerome Powell said that while Washington’s nearly $3 trillion economic response to the coronavirus is on target, it will likely not be the final chapter given the uncertainty around the pandemic.
“The overall policy response to date has provided a measure of relief and stability, and will provide some support to the recovery when it comes,” he said in a statement. “But the coronavirus crisis raises longer-term concerns as well. The record shows that deeper and longer recessions can leave behind lasting damage to the productive capacity of the economy.”
Powell made his remarks on Wednesday (May 13) in a 30-minute virtual interview with Adam Posen, president of the Peterson Institute for International Economics, a Washington, D.C.-based non-partisan think tank focused on international economics.
The Fed chairman said the scope and speed of the downturn are without modern precedent and is worse than any recession since World War II. The severe decline in economic activity and employment has erased the job gains of the past decade, he added.
A Federal Reserve Board survey set to be released on Thursday (May 14) will reveal the suffering of Americans as the crisis continues, Powell noted.
In February, before the pandemic, nearly 40 percent of the workforce was making less than $40,000 annually, the survey found.
“This reversal of economic fortune has caused a level of pain that is hard to capture in words, as lives are upended amid great uncertainty about the future,” said Powell.
When asked when he expected the economy to recover, Powell said it will take time, but it will happen. “I would say that probably over the course of the next month or so, unemployment will peak, and as we return to more normal levels of economic activity, it’s a reasonable expectation that unemployment will start to decline again, and it may decline sharply,” he said.
But it will take a while before the unemployment rate falls to the low rate from January. “It will take some time to get back to where we were, [but] I have every reason to think we can get back there,” Powell said. “The economy should substantially recover once the virus is under control."
He declined to say whether the Fed thinks Congress should take further action to prop up the economy. “We don't play a formal role in fiscal policy, we don’t take positions on specific bills, that’s not our role to oversee Congress, they have oversight over us,” he noted.
When Powell was asked whether the Fed would consider negative rates going forward, he said that was unlikely. “Our view has not changed, and we are not looking at that,” he said. “We relied on forward guidance and asset purchases, and we intend to rely on those tools that are tried. There are fans of that policy, but it’s not something for us to consider.”