How long will it take the United States economy to recover from the ravages of the coronavirus crisis? It is a question so riddled with uncertainty that even the steward of the world’s largest economy- Federal Reserve Chairman Jerome Powell- cannot answer it definitively.
But on Wednesday, Powell attempted to manage expectations, warning that the US could be facing an “extended period ” of low growth and stagnant incomes, and that more government spending may be required to avoid long-term economic damage.
Speaking during a webcast event organised by the Peterson Institute for International Economics, Powell addressed the human toll wrought by both the coronavirus health crisis and the economic downturn triggered by lockdowns that have shuttered thousands of businesses and thrown tens of millions of Americans out of work.
“This reversal of economic fortune has caused a level of pain that is hard to capture in words, as lives are upended amid great uncertainty about the future,” he said.
More than 33.5 million Americans filed for unemployment benefits in the seven weeks ending May 2, erasing the job gains of the past decade.
The unemployment rate for April hit 14.7 percent – the highest level since the Great Depression. More adult women lost jobs in April than adult men, while unemployment rates among Black and Hispanic workers were higher than the rates for Whites and Asians.
On Wednesday, Powell also noted low-income earners are being hit disproportionately. Quoting a Fed survey due to be released on Thursday, he said, “Among people who were working in February, almost 40 percent of those in households making less than $40,000 a year had lost a job in March.”
The Federal Reserve has unleashed a series of measures to help households and business get through the crisis and ready to rebound as it abates.
The Fed’s moves have included 2008 financial crisis-era tools like slashing borrowing costs to zero and bond purchases. The US central bank has also unleashed unprecedented measures to ensure there are enough US dollars in the global financial plumbing to meet demand, and to stop credit markets from freezing up, as well as to help business great and small, along with state and local governments.
While the Fed lends, the federal government spends – a fact Powell also highlighted during his address – noting that Congress has provided some 2.9 trillion dollars in fiscal help – or a staggering 14 percent of GDP – to US households, businesses, hospitals and state and local governments.
The spending spree swelled the US government deficit to $737bn in April- a monthly record.
Powell’s comments come as states and cities across the US are easing coronavirus lockdown restrictions and allowing some businesses to reopen. But the moves have set off a fierce debate about how to balance the necessity for resuming economic activity against the risks of potentially igniting a resurgence of COVID-19 infections.
In testimony before Congress on Tuesday, Dr Anthony Fauci, director of the National Institute of Allergy and Infectious Diseases, warned that reopening too soon “could turn the clock back,” causing avoidable suffering and death and dealing a setback to an economic recovery.
Indeed, Powell did not shy away from the uncertainties surrounding the outlook for the economy, saying that while the Fed’s policy response thus far has been timely and sufficiently large, “it may not be the final chapter, given that the path ahead is both highly uncertain and subject to significant downside risks.”
Powell further noted longer-term concerns raised by the coronavirus crisis that could weigh on the US economy, including avoidable personal and business bankruptcies, long-term stretches of unemployment that leave workers on a less competitive footing, the potential loss of thousands of small- and medium-sized businesses that are a principal source of US jobs creation, and an environment that discourages business investment, which would also place a damper on the US jobs machine.
“The record shows that deeper and longer recessions can leave behind lasting damage to the productive capacity of the economy,” he said.
Powell added that additional policy measures should be used to avoid these outcomes, including more government spending – if that is what it takes.
“Additional fiscal support could be costly, but worth it if it helps avoid long-term economic damage and leaves us with a stronger recovery,” he said.