WASHINGTON, DC: A full US economic recovery will not occur until the American people are sure that the novel coronavirus epidemic has been brought under control, Federal Reserve Chair Jerome Powell said on Tuesday (Jun 16), as he began the first of two days of hearings before US lawmakers.
While recent signs of improvement including a surprise gain in employment and a record rise in retail sales last month are encouraging, the damage inflicted by forced shutdowns of activity to contain the spread of the virus starting in March has left a very deep hole to fill, especially on the employment front, Powell said.
“Something like close to 25 million people have been displaced in the workforce, either partially or through unemployment and so we have a long road ahead of us to get those people back to work,” Powell said in response to a question from a member of the Senate Banking Committee.
Powell’s prepared remarks to the committee largely echoed the cautionary tone he struck last week at the conclusion of the Fed’s latest two-day policy meeting, mapping out how the United States faces an uncertain, uneven and prolonged economic recovery from the novel coronavirus crisis.
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.
“The longer the downturn lasts, the greater the potential for longer-term damage from permanent job loss and business closures,” Powell said in his opening statement, a theme he returned to in his answers to committee members’ questions.
“As I mentioned earlier there’s a broad expectation that we’ll see big numbers of people coming back this summer, and we certainly hope that turns out to be right. But also, those people who work in those service industries that are going to take longer to recover, there will be a lot of them, and they’ll find it hard to get back to work as quickly as the others.”
Congress has so far allocated nearly US$3 trillion in financial relief, including direct payments to households and a forgivable loan scheme for small businesses, while the Fed has implemented numerous programs to pump trillions of dollars of credit into the economy.
On Monday, the Fed launched its long-awaited Main Street lending programme, which will offer up to US$600 billion in loans to US businesses with up to 15,000 employees or with revenues up to US$5 billion.
But as Powell reiterated on 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. He also said that direct financial support to families and businesses makes “a critical difference” in limiting long-lasting damage.
Powell and other Fed officials have increasingly said Congress may need to do more to prevent long-term economic scarring and the Fed warned in its semi-annual report to lawmakers on Friday that it expects households and businesses to suffer “persistent fragilities.”
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.
“If not contained and reversed, the downturn could further widen gaps in economic well-being that the long expansion had made some progress in closing,” Powell, who will also appear before the House Financial Services Committee on Wednesday, said in his prepared remarks.
Fed officials currently forecast the economy shrinking at a 6.5 per cent annualised rate in 2020 and see unemployment remaining elevated for several years. Powell has previously said he sees millions, particularly low-wage workers, remaining out of work for the foreseeable future with no easy re-entry into employment.