Powell says US economy 'well short' of pre-pandemic level despite reopening

Marco Green
June 17, 2020

File picture shows Federal Reserve Chairman Jerome Powell holding a press conference following a two day Federal Open Market Committee policy meeting in Washington, January 30, 2019.

"Recently, some indicators have pointed to a stabilization, and in some areas a modest rebound, in economic activity".

During testimony before the Senate Banking Committee, Powell said that while there have been signs of economic improvement, the decline in US GDP this quarter "is likely to be the most severe on record", and the country is facing the daunting challenge of drawing down unemployment that is up about 10% compared to pre-pandemic levels.

The US economy may be entering a phase of bouncing back, with the easing of social distancing measures and resumption of business activities, but employment and output will be "well short" of the pre-pandemic level, Federal Reserve Chairman Jerome Powell said on Tuesday. The Fed kept interest rates unchanged near zero and made clear it plans years of extraordinary stimulus as the nation grapples with steps toward fully reopening its economy amid state and local surges in cases, and with no vaccine in sight.

"Low-income households have experienced, by far, the sharpest drop in employment, while job losses of African Americans, Hispanics, and women have been greater than that of other groups", Powell said.

"There are going to be a lot of people going back to work in coming months, but there are going to be a lot of people who can't", Powell said.

Almost $3 trillion of fiscal aid passed by Congress in March "has had a real effect", Powell said.

But as Powell reiterated Tuesday, there will be no quick fix to healing the economy and he repeated that the Fed will use its full range of tools to help it recover.

However, the Fed's actions "are only part of a broader public sector response", and the direct support that only Congress can provide "can make a critical difference not just in helping families and businesses in a time of need, but also in limiting long-lasting damage to our economy".

ING economist James Knightley agreed with Powell.

Millions of people have become unemployed as a result of the epidemic, which has killed more than 116,000 people in the United States, with minority communities among those hardest hit on both fronts.

Fed officials now forecast the economy shrinking at a 6.5% annualized rate in 2020 and see unemployment remaining elevated for several years.

Other reports by Click Lancashire

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