According to Fed Chair Jerome Powell, the US economy will recover from the coronavirus pandemic, but not in 2020.
This comment comes as the American public struggles with the economic and health-related toll of the crisis. Despite positive signs in the stock market, the Fed chair believes the same V-shaped recovery would not be possible for the economy.
In March, when the stock market was crashing and the economy was going down, Congress passed the $2T CARES package. While the package handed every American citizen $1200, it also bailed out big corporations and Wall Street. This bailout allowed the stock market to recover, but couldn’t help the economy sustain itself through the crisis.
Fed Chair Says Recovery of Economy Possible in 2021
During a 60 Minutes interview, the Fed Chair said that the recovery of the economy could take until the end of 2021.
Jerome Powell, the Fed Chair, while confident about the recovery itself, thinks the deep impact the pandemic is having means the economy will take time to heal.
In the interview, Powell said the speed of the recovery would depend on how quickly people are comfortable gathering in closed spaces. For a complete return to the previous normal, a coronavirus vaccine is the only way. Even the most optimistic timeline suggests the world is still many weeks and months away from a vaccine.
According to Powell, the GDP of the US could reduce at 25-30% annualized rate between April and June. This contraction of GDP along with an increasing rate of unemployment makes restoring the American economy a tall order.
Furthermore, the Fed chair added that the parts of the economy where people gather in closed spaces will remain locked. While other parts of the economy can return to normal, a full recovery is not possible until everyone in the economy can safely return to work.
The best thing Congress could do, Powell said, is reducing business insolvencies. The natural benefit of doing so is helping people keep their jobs during this crisis while staying at home.
Powell Calls for More Stimulus from Congress
Speaking earlier to Congress, Powell urged lawmakers to push for more stimulus packages. The Fed Chair warned if lawmakers don’t pass drastic relief measures, it could take years for the economy to recover.
He also told lawmakers to not worry about the national debt and give the country the financial support it needs to arrest the downward spiral.
Powell’s warning comes after Senate Republicans and White House officials grew cold on any more relief legislation. The Democrats passed a $3T relief bill in the House on Friday, but it’s unlikely to go through the Republican-controlled Senate.
Powell is not the first fed chair to ask Congress to loosen the purse strings and increase the federal debt ceiling. The previous two fed chairs, Janet Yellen and Ben Bernanke, also urged Congress to spend more during their respective tenures.
The Fed Chair was amongst the few who warned people about the coronavirus threat to the country and its economy. As early as January 29, Powell said the coronavirus threat presented serious economic challenges to the US. At the time, President Trump, his aides, and many major media publications were playing down the coronavirus threat.
(Image Credit – The Federal Reserve)