US may be in recession amid Covid-19 crisis, says Fed chair Jerome Powell

The Federal Reserve chairman, Jerome Powell, said on Thursday that the US may already be in recession and warned that the time for lifting societal restrictions that have squashed the economy would be dictated by the coronavirus outbreak – in contrast to Donald Trump’s aspiration to return to normal life by Easter.

In a rare live television interview for a Fed chair, the morning after the US Senate passed a $2.2tn disaster funding package, Powell said that America’s central bank would not “run out of ammo” in its efforts to support the economy through this “unique” crisis, but gave no assurances on how long the US will be partially shut down.

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“We are not an expert in pandemics over here, we want to listen to the [health] experts,” he told NBC’s Today program on Thursday morning.

The only individual Powell referred to during his interview was not the president or any of his political aides, but Dr Anthony Fauci, the nation’s top infectious disease expert and the leading public health figure on the White House coronavirus taskforce.

Asked by the Today anchor Savannah Guthrie whether the public should pay more attention to Trump’s bullish projections of everyone soon returning to work normally or health experts who cautioned against such a prospect, Powell echoed what Fauci has said this week.

“Fauci said … the virus is going to set the timetable and I think that’s right … the first order of business is to get the spread of the virus under control and then resume economic activity,” Powell said.

On Thursday, the US passed the 1,000 deaths mark from Covid-19, with 68,000 confirmed cases. A week ago the number of confirmed cases in the US was around 9,000, before a rapid increase in both spread and testing.

The Federal Reserve earlier this month dropped interest rates practically to zero and when asked if there was a blank check to support the economy, Powell said there was not but there was a tremendous amount the bank could do to get America through the crisis.

“We do have the ability to use our emergency lending authorities … we can continue to make loans and the point of all that is to support the flow of credit into the economy,” Powell said. He said the only backstop to such spending would be the Treasury.

“Investors have pulled back which means that capital markets that support [things like] mortgages and car loans just stopped working. We can support that with our emergency powers. Where credit is not flowing we can step in and offer those loans and we will step in,” he said.

Asked if the economy could handle a months-long shut down if that’s what the US public health emergency requires, Powell spoke of the unique situation.

“People are being asked to close their businesses and stay home, at a certain point we will get the virus under control and at that point confidence will return,” he said, adding that the rebound at that point could be “vigorous”.

Powell said the public health crisis must be dealt with first “then let the economy bounce back”, not “rush in to opening the economy”.

“The first order of business is to get the spread of the virus under control and then resume economic activity,” he said.

Asked if an economic recession was inevitable or, indeed, already under way, he said: “We may well be in a recession,” while emphasizing that the downturn came on the back of an exceptionally, fundamentally strong economy.

“The virus is going to dictate the timetable,” he said.

Asked if the bank could “run out of ammo” to combat the effect of the virus on the economy, Powell said the Fed would not run out of financial ammunition and when the economy began to recover “we will be there to make sure it’s as strong as possible.”

Before the outbreak, Trump had repeatedly criticized Powell personally, and the Federal Reserve, in public, calling the chairman “clueless” and the bank “pathetic” among other attacks.

Powell said: “We are totally focused on our mission of serving the American people, we try to do our best to serve them, we do not let anything else get into our thinking, that’s the way it always is at the Fed, it’s deep in our DNA.”

His closing message was a plea and a note of encouragement to the public.

“We have asked people to step back from economic activity for the public good. The Fed is working hard to support you now,” he said.

Meanwhile Fauci, director of the National Institute of Allergy and
Infectious Diseases, warned that it was too soon for the country to
consider going back to normal.

“The US is not unidimensional, so what we’re seeing is two components
of how you address an outbreak – containment, in which you try to
identify each individual person infected, get them out of circulation
and do contact-tracing.”

But that, he told New York’s WNYC, was a strategy “we needed to do
before it became a massive outbreak”.

In a city like New York, which is now the center of the outbreak, the strategy now is mitigation.

But Fauci said of Trump setting Easter, 12 April, as an aspirational goal to get the country back to work, “he knows, and we’ve discussed it with him, that he has to be very flexible on that.

“He put that out because he wants to give people some hope, but he is
not absolutely wed to that,” Fauci added.

In an address on Wednesday, New York’s Mayor Bill de Blasio warned that
over 4 million New Yorkers – or 50% of the city’s population –
will get the coronavirus.

“It’s a fair bet to say that half of all New Yorkers and maybe more
than half will end up contracting this disease,” De Blasio said at a
City Hall press briefing about the outbreak as the Big Apple’s
positive cases approached 18,000 with close to 200 deaths.

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