Fed boss pleads for more support amid gloomy outlook for U.S. economy
WASHINGTON The head of the Federal Reserve warned on Wednesday of an “extended period” of weak economic growth, vowed to use the U.S. central bank’s power as needed, and called for additional fiscal spending to stem the fallout from the coronavirus pandemic.
Fed chairman Jerome Powell issued his sober review of an economy slammed by a record pace of job losses and bracing for worse ahead as most U.S. states moved toward reopening after weeks of shutdowns aimed at slowing the spread of the novel coronavirus.
The pandemic has killed more than 82,000 people in the United States so far, and many epidemiological models now point to a death toll that will surpass 100,000 in a matter of weeks.
Powell pointed to uncertainty over how well future outbreaks of the virus can be controlled and how quickly a vaccine or therapy can be developed, and said policy-makers needed to be ready to address “a range” of possible outcomes.
“It will take some time to get back to where we were,” Powell said in a webcast interview with Adam Posen, the director of the Peterson Institute for International Economics. “There is a sense, growing sense I think, that the recovery may come more slowly than we would like. But it will come, and that may mean that it’s necessary for us to do more.”
For a central banker who spent part of his career as a deficit hawk and has tried to avoid giving advice to elected officials, the remarks marked an extraordinary nod to the risks the U.S. economy is facing from the combined health and economic crisis brought on by the pandemic.
The U.S. central bank has slashed interest rates to near zero and set up a broad network of programs to ensure financial markets continue to function during the pandemic.
It has also established precedent-setting lending facilities for companies and the first-ever corporate bond purchases.
Congress, for its part, has allocated nearly US$3 trillion for economic relief during the crisis.
The U.S. response to date “has been particularly swift and forceful,” Powell said. But the longer those health risks persist, he said, the more likely businesses will fail and households will be strapped for income in a downturn that he noted has fallen most heavily on those least able to cope.
The worst-case outcome leaves the economy mired in “an extended period of low productivity growth and stagnant incomes ... Additional fiscal support could be costly but worth it if it helps avoid long-term economic damage and leaves us with a stronger recovery,” Powell said in what amounted to a direct call for Congress to ramp up its aid during the crisis.
The Fed will continue to “use our tools to their fullest until the crisis has passed and the economic recovery is well underway,” Powell said. But those tools, he made clear, don’t include pushing interest rates below zero, as some other central banks did fighting the global financial crisis more than a decade ago.
Powell’s warning sent U.S. markets tumbling. The Dow Jones Industrial Average fell 516.81 points, or 2.17 per cent, to 23,247.97, the S&P 500 lost 50.12 points, or 1.75 per cent, to 2,820 and the Nasdaq Composite dropped 139.38 points, or 1.55 per cent, to 8,863.17.
The U.S. House of Representatives and Senate are deliberating further responses to the pandemic. White House officials have said they want to assess how an initial round of economic reopenings by states goes before deciding what to do.