US fac­ing se­vere cri­sis, but not de­pres­sion: Fed

Kuwait Times - - Business -

WASH­ING­TON: The US 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 $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.

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