The United States is facing a severe economic downturn amid the global pandemic, but will not suffer another Great Depression and will see a recovery begin later this year, Federal Reserve Chair Jerome Powell said Sunday.
The world’s top economy was strong before the COVID-19 outbreak hit, like a natural disaster, causing nationwide business shutdowns, Powell said. And the banking system had been rebuilt stronger since the global financial crisis.
Data show more than 30 million jobs were destroyed in the US, as businesses were shuttered nationwide amid the efforts to stop the spread of the virus.
For the April-June period, the economic data “will be very, very bad. There’ll be a big decline in economic activity, big increase in unemployment,” Powell told the CBS program “60 Minutes.”
But “there’re some very fundamental differences” between the current crisis and the Great Depression of the last century, he said.
The US economy could “easily” collapse by 20 to 30 percent this quarter, and unemployment could peak at 20 to 25 percent, but, “it should be a much shorter downturn than you would associate with the 1930s.”
The other key difference is, rather than raising interest rates, the Fed slashed lending rates to zero and is prepared to come up with new ways to support growth, Powell said.
Growth resumes Q3
“I think there’s a good chance that there’ll be positive growth in the third quarter,” he said.
But he warned it may take time to return to normal and the US may not see a full recovery without a vaccine to treat COVID-19.
“I think you’ll see the economy recover steadily through the second half of this year,” Powell said.
But “it’s going to take a while for us to get back,” he said. “It could stretch through the end of next year. We really don’t know.”
Asked about the need for a vaccine to treat the illness and put a stop to the coronavirus pandemic, Powell stressed the importance of consumers to the economy.
“For the economy to fully recover, people will have to be fully confident, and that may have to await the arrival of a vaccine,” he said.
The Fed rushed in even before the economic lockdowns were fully in place, slashing the benchmark lending rate and pumping trillions of dollars into the financial system and into lending programs to support corporations, small- and medium-sized businesses and state and local governments.
The central bank chief said the Fed is prepared to do more to support the recovery.
But he repeated his message that the economy likely will need more government spending to support workers and businesses to allow the economy to recover, beyond the nearly US$3 trillion already approved by Congress.
“If we let people be out of work for long periods of time, if we let businesses fail unnecessarily, waves of them, there’ll be longer-term damage to the economy. The recovery will be slower,” he said.
“The good news is we can avoid that by providing more support now.”
The crisis “has come on so quickly, and with such force, that you really can’t put into words the pain people are feeling and the uncertainty they’re realizing,” he told CBS.