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Federal Reserve chairman says US economy may not recover until late 2021

By
Noah Manskar
Published May 18, 2020
Updated May 18, 2020, 11:55 a.m. ET

The US economy may not recover from the coronavirus crisis until the end of 2021, Federal Reserve Chairman Jerome Powell warned.

While he rejected the idea that the pandemic will lead to a second Great Depression, the nation’s top central banker said it’s unclear just how quickly the economy will get back on its feet as states begin to lift lockdowns aimed at curbing the virus.

“It could stretch through the end of next year,” Powell said in an interview with CBS’ “60 Minutes” released Sunday. “We really don’t know. We hope that it will be shorter than that, but no one really knows.”

Powell repeated the Fed’s pledge to shore up the economy as the US trudges through the peak of the crisis. He said the bank could enlarge its existing lending programs, create new ones or take additional monetary policy steps even after already committing trillions of dollars in support.

“We’re not out of ammunition by a long shot,” Powell said. “There’s a lot more we can do to support the economy, and we’re committed to doing everything we can as long as we need to.”

Powell offered his outlook after warning last week that the coronavirus could leave the US economy with lasting scars, throwing cold water on hopes for a quick rebound from the pandemic.

The Fed chief indicated that the three-month period from April to June will likely be the worst of the downturn, given that much of the country has been locked down.

Unemployment, which surged to a record 20.5 percent in April, may yet climb to 25 percent, Powell indicated, and the nation’s gross domestic product could shrink at an annual rate of 30 percent or more in the second quarter.

That would mark the worst economic contraction since the Great Depression, following a 4.8 percent drop in the first quarter, when the virus first reached the US.

But the crisis likely won’t reach the scale of the decade-long depression that started in 1929, thanks in part to the aggressive action central banks around the world have taken to keep the world economy functioning, Powell said.

“This is an outside event, it is a natural disaster, in effect,” he said. “Here, our financial system is strong, has been able to withstand this. And we spent 10 years strengthening it after the last crisis.”

The Fed chief added that the economy will regain the strength it had before the virus locked down most of the country — but that may not happen until scientists develop an effective coronavirus vaccine, he said.

“For the economy to fully recover, people will have to be fully confident, and that may have to await the arrival of a vaccine,” Powell said.