The Chairman of the Federal reserve system Jerome Powell on Wednesday warned of a "prolonged" period of weak growth and stagnant incomes, promising to use more of the power of the Central Bank as necessary, and called for additional budget expenditures.
“Take some time to get back to where we were — said Powell. — There is a sense that recovery may be slower than we would like. But it will come, and it may mean that we need to do more”.
Powell, however, made it clear that the fed will not lower interest rates below zero, although traders are increasingly put on the adoption of these measures. Negative interest rates, he said, “this is not what we consider”.
Powell said that politicians may have to use additional measures to pull the country out of the economic crisis, which cost US at least 20 million jobs and caused “the level of pain that is difficult to convey in words”.
Although he did not specify what measures and how they will proceed, Powell said that the coronavirus caused a situation, in contrast to previous recessions in the United States, and the response of the Congress must be more ambitious than the reaction of the fed.
He noted the unprecedented power of the already adopted fiscal and monetary measures, but stressed the importance of ensuring that the deepest recession since the great depression got out of control.
The US Central Bank cut interest rates to almost zero and created a wide network of programs to ensure the functioning of financial markets during a pandemic. He also created a precedent credit conditions for companies and organized a first in the history of buying corporate bonds.
The Congress, for its part, has allocated almost $ 3 trillion in economic aid during the crisis.
the reaction of the USA today "was particularly rapid and convincing" — said Powell. “But the recovery process may take some time to gain momentum, it will depend on progress in the fight against the pandemic" — he added.
According to the head of the fed, the longer you keep these health risks, the greater the likelihood that the company will go bankrupt, and households will experience difficulties with the receipt of income in the economic downturn, which, he said, will be the fall of those who are least able to cope with the situation.
In the worst case, the economy will remain in the ‘long period of low productivity growth and stagnant incomes … Additional fiscal support may be expensive but is worth it if it helps to avoid long-term economic damage and leaves a stronger us recovery”. Powell said that this means a direct appeal to Congress to increase aid to the economy during the crisis.
“This is a compromise to our elected representatives that have the authority to tax and expenses" — said the head of the fed.
In his remarks, Powell noted a number of uncertainties that will affect how quickly put under the control of the new coronavirus and how to quickly get back the total confidence in the economy.
"the Next six to eight weeks will be of fundamental importance" to determine if I feel that consumers and workers are safe enough to return to the market, and if they can make it painless, said Tuesday the President of the Richmond fed Thomas Barkin.
“We are on the verge … some revival of the economy" — the official said. According to Barkin, the question is how to speed up the recovery, keeping the risks to public health under control.
This was the main theme in the United States, threatening potentially disastrous consequences for health. Provided that the virus will revive, it will lead to terrible economic consequences for tens of millions of unemployed citizens, business and family budgets, and so strained to the limit.
In April, the U.S. economy lost a staggering 20.5 million jobs, and about 33 million Americans claimed unemployment benefits since late March, when many government leaders began to encourage people to stay at home. Some analysts believe that in the second quarter, the economy could shrink by 40% year on year.
on Tuesday at a hearing of the Senate Anthony Fauci, Director of the National Institute of Allergy and infectious diseases, spoke about the risk, which could “paradoxical” to lead to the deterioration of the situation in the country, if it appears too haphazard. All could end up not only new rounds of infection, but the second wave of restrictions for those who can go to work and operating companies.
Materials on this topic can also be read:
the Fed's Powell warns of prolonged economic weakness, calls for more fiscal support (Reuters)
Powell says policy more help may be needed to pull the US out of economic downturn (CNBC)
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