By CHRISTOPHER RUGABER AP Economics Writer
- May 17, 2020
In an interview with CBS’s “60
Minutes," Powell noted that the economy was fundamentally healthy before
the virus struck suddenly and forced widespread business shutdowns and tens of
millions of layoffs. Once the outbreak has been contained, he said, the economy
should be able to rebound “substantially.”
Powell offered an overall positive message
while warning that it would take much longer for the economy to regain its
health than it took for it to collapse with stunning speed.
“In the long run, and even in the medium
run," the chairman said, "you wouldn’t want to bet against the
American economy. This economy will recover. And that means people will go back
to work. Unemployment will get back down. We’ll get through this."
Powell pointed out that the downturn wasn't
a result of deep-seated financial instabilities, like the housing meltdown and
the excessive risk-taking among banks that ignited the Great Recession. Rather,
it resulted from an external event — a pandemic — that required a shutdown of
the economy. That may mean, he said, that “we can get back to a healthy economy
fairly quickly.”
In the meantime, though, American workers
are enduring their worst crisis in decades. More than 36 million people have
applied for unemployment benefits in the two months since the coronavirus first
forced businesses to close down and shrink their workforces. The unemployment
rate, at 14.7%, is the highest since the Great Depression, and is widely
expected to go much higher.
In the interview with CBS, Powell played
down comparisons to the Depression. While acknowledging that unemployment could
peak near the Depression high of 25%, he noted that U.S. banks are far
healthier now and that the Fed and other central banks are much more able and
willing to intervene to bolster economies than they were in the 1930s.
Still, Powell cautioned that it would take
time for the economy to return to anything close to normal. A recovery “could
stretch through the end of next year,” he said. And a vaccine would likely be
necessary for Americans to feel safe enough to return to their normal economic
behavior of shopping, traveling, eating out and congregating in large groups —
activities that fuel much of the economy’s growth. Most health experts have
said that a vaccine won’t be ready for use for 12 to 18 months at least.
“Certain parts of the economy will find it
very difficult to have really a lot of activity,” Powell said. “The parts that
involve people being in the same place, very close together. Those parts of the
economy will be challenged until people feel really safe again.”
The Fed chairman said he and other central
bank officials, in conversations with businesses, labor leaders, universities
and hospitals, have picked up on “a growing sense that the recovery may take
some time to gain momentum.”
“That would mean,” he added, ”that we will
start our recovery and get on that road, and that’ll be a good thing, but that
it’ll take some time to pick up steam.”
Powell reiterated his view that both
Congress and the Fed must be prepared to provide additional financial support
to prevent permanent damage to the economy from widespread bankruptcies among
small businesses or long-term unemployment, which typically erodes workers’
skills and social networks. Congress has already approved roughly $3 trillion
in rescue aid for individuals and businesses. But states and localities are in
need of federal money to avoid having to cut jobs and services, and legislation
to provide that money remains at an impasse in Congress.
If necessary, Powell said, the Fed could
expand any of the nine emergency lending programs it has launched since the
viral outbreak began to harm the economy — or create new ones. In March, the
central bank slashed its benchmark interest rate to near zero as stock markets
plunged and bond markets froze. The Fed has also intervened by buying $2.1
trillion in Treasurys and other bonds in an effort to keep interest rates low
and smooth the flow of credit.
The Fed could also provide more explicit
guidance on how long it will keep rates pegged at nearly zero and the extent of
its bond-purchase programs, Powell said. Doing so would give banks and other
companies more confidence that borrowing rates will stay lower for longer.
But the chairman reiterated that the Fed
isn’t considering cutting rates into negative territory, which President Donald
Trump has repeatedly urged. The issue of negative rates flared up in recent
weeks when futures markets essentially bet that the Fed would take that step
early next year, as some other central banks have done.
“There’re plenty of people who think
negative interest rates are a good policy,” Powell said. “But we don’t really
think so at the Federal Reserve.”
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