ILLINOIS: Federal Reserve (Fed) chairman Jerome Powell voiced concern that the coronavirus crisis could leave permanent scars on the United States economy and said policy makers of all stripes needed to do more to limit the damage.
In a sober 48-minute teleconference with reporters after the Fed left interest rates pinned near zero, Powell suggested that the economic battle against the virus would be far from over even if a recovery begins in the third quarter from the deepest recession since the Great Depression.
The ongoing public health crisis “poses considerable risks to the economic outlook over the medium term, ” Fed policy makers said in a statement on Wednesday after two days of talks.
The central bank’s somber assessment contrasted with hopes for a rapid rebound among stock market investors and President Donald Trump and indicates that the Fed could keep the federal funds rate at rock bottom levels for years.
“My estimate is that the funds rate will be at zero for five years, ” said Jonathan Wright, economics professor at Johns Hopkins University in Baltimore and a former Fed economist.
“The economy cannot be easily restarted and it is going to be a very long slog to get the economy back on its old trajectory.”
In perhaps a sign of how concerned he is, Powell set aside his usual reticence about commenting on fiscal policy and urged lawmakers to come up with further measures to support the economy.
He also played down worries -- primarily voiced by Republican lawmakers -- about the impact the government spending was having on the nation’s debt.
“This is not the time to act on those concerns, ” said the Fed chief. “This is the time to use the great fiscal power of the US.”
Powell, who served in the Republican administration of George H W Bush, was picked to run the central bank by Trump but was initially appointed to its Board of Governors by the president’s predecessor, Barack Obama.
Congress has already enacted a series of aid packages, including US$2.2 trillion to support households and businesses to cope with the crisis.
While saying that the Fed was prepared to use all its tools to help the economy, Powell did not spell out any new steps at his press conference even as he stressed the difficulties ahead.
Powell repeatedly called the stance of monetary “appropriate, ” noting that the Fed has promised to keep rates near zero until it is confident that the economy has weathered the coronavirus crisis and is on track to achieve the central bank’s goals of maximum employment and price stability.
He hinted that forward guidance might be made more specific at a future Fed meeting without saying how or when. — Bloomberg
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