On Wednesday, Fed Chairman Jerome Powell warned of a long recession in the United States, and said that the long-term state of the US economy will depend on additional financial incentives to combat the economic impact of the coronavirus.
Here are Powell’s remarks for the Peterson Institute for International Economics:
The coronavirus has led to devastating not only human, but also economic consequences, as it spread throughout the world. This is a global public health crisis, and healthcare professionals were the first to show courage and determination, thereby deserving our gratitude. The same can be said for the legions of other important professions that put themselves at risk every day.
The scale and speed of this decline is much worse than any recession since World War II. We are witnessing a serious decline in economic activity and employment, and the results already achieved over the past decade have been erased. Since restrictions were imposed two months ago, more than 20 million people have lost their jobs.
Previously, in the aftermath of World War II, economic downturns were sometimes associated with a high inflation cycle, followed by a tightening of the Fed. The current decline is unique in that it is associated with the virus and measures taken to limit its effects.
To date, the Congress has provided approximately $ 2.9 trillion for financial support to households, enterprises, health care providers, as well as state and local governments — about 14% of the GDP.
On the Fed side, we reduced the rate to zero and took a number of additional measures to facilitate the flow of loans in the economy, which can be grouped in four directions:
First, direct purchases of Treasury bonds and mortgage-backed securities.
Secondly, liquidity and financing measures to exchange with foreign central banks.
Thirdly, with additional support from the Treasury, support for the flow of loans to households, enterprises, as well as state and local authorities.
And fourthly, temporary regulatory adjustments designed to stimulate and allow banks to expand their balance sheets to support their home and business clients.
The Fed only takes such actions in extreme circumstances similar to those that we are facing today. For example, our authority to provide loans directly to private non-financial enterprises, as well as to local and state governments, exists only in “unusual and urgent circumstances” and with the consent of the Secretary of Treasury. When this crisis is over, we will change our lending tactics.
Economic forecasts and better times are uncertain There are also new questions that are being asked today: can new restrictions be avoided? How long will it take to restore confidence and resume normal income and expenses?
The answers to these questions will be of great importance in determining the timing and pace of economic recovery. Since the answers are currently unknown, we must be prepared to solve a number of possible problems.
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