Control pandemic first, then open economy, Fed chairman says

The United States “may well be in recession”, but progress in controlling the spread of the coronavirus will determine when the economy can fully reopen, US Federal Reserve Chair Jerome Powell said Thursday in a rare network television interview on NBC’s Today Show.

Powell spoke just about an hour before federal data showed a record-breaking spike of unemployment claims to 3.28 million, evidence that “social distancing” to fight the pandemic has taken hold, and may have ended the country’s more than decade-long economic expansion.

Powell’s choice of venue – a network morning show when many Americans are homebound and paying close attention – was itself part of a message that seemed meant to prepare people for the dismal economic data to come, counsel patience in any rush back to work, and reassure that the Fed would act “aggressively” to keep firms and families afloat.

“We are not experts in pandemic … We would tend to listen to the experts. Dr Fauci said something like the virus is going to set the timetable, and that sounds right to me,” Powell said, in reference to Anthony Fauci, head of the National Institute of Allergy and Infectious Diseases, who is on the White House’s coronavirus task force.

“The first order of business will be to get the spread of the virus under control and then resume economic activity.”

The US central bank chief’s remarks are a contrast to the urging by some of President Donald Trump’s advisers for a faster reopening. The president himself has said he wants the economy to be “roaring” by Easter, in a little over two weeks.

The Fed officials who have spoken to the issue, now including Powell, have taken a more sombre approach, focusing on the need to first control the virus, then restore confidence among workers and consumers that it is safe to go back to business.

Enforcing the message

Powell used the television appearance, outside the confines of the news shows or economic conferences where Fed chairs typically appear, to enforce that message and take what for a central banker is the unusual step of acknowledging the economy may be contracting even before economic data has confirmed it.

But the situation is so unusual that policymakers have become atypically blunt, arguing that a deliberate choice to close stores in the name of public health, as Powell said, “is not a typical downturn … There is nothing fundamentally wrong with our economy.”

But as with the unemployment claims, upcoming reports are expected to show such large jumps in joblessness and lost output that the focus has shifted toward ensuring businesses and households get through the period with their finances intact.

The aim of the trillions of dollars in lending and bond purchases the Fed has authorised over the past two weeks is precisely to let an otherwise healthy economy pause long enough to keep people safe, Powell said, before what could be a strong rebound later in the year.

He said the central bank would lend “aggressively” to ensure that happens, with an expected $424bn commitment from the US Treasury to cover any losses, allowing the Fed to unleash perhaps $4 trillion for credit to “Main Street”.

“The sooner we get through this period and get the virus under control, the sooner the recovery can come,” Powell said. “We know that economic activity will decline probably substantially in the second quarter, but I think many expect and I would expect economic activity to resume and move back up in the second half of the year.”