Federal Reserve Chairman Jerome Powell on Thursday said there could well be significant economic pain in the short term in light of the coronavirus outbreak but that there also could be a “good rebound” on the other side of the crisis.
“You may well see significant rises in unemployment, significant declines in economic activity, but there can also be a good rebound on the other side of that and that’s actually one of the main things we’re trying to do by assuring the flow of credit in the economy and keeping rates low,” Mr. Powell said on NBC’s “Today” program.
“We may well be in a recession,” he acknowledged, while saying there’s nothing fundamentally wrong with the economy and that it performed well through February.
Mr. Powell did say he’s not sure about the exact time frame for such a bounceback.
“What I’m saying is we don’t know,” he said. “And the sooner we get through this period and get the virus under control, the sooner the recovery can come. We don’t have comparable experiences to go back and look at.”
“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 the second half of the year,” he said. “Very hard to say precisely when that will be, and it will really depend on the spread of the virus. The virus is going to dictate the timetable here.”
Earlier this week, the Fed said it would buy Treasury securities and mortgage-backed securities “in the amounts needed” to support the markets as part of new emergency measures to try to mitigate the financial effects of COVID-19.
Mr. Powell said the Fed’s authority does not amount to a “blank check.”
“It’s not a blank check in the sense that we are limited by the ability to take losses,” he said. “In certain circumstances like the present, we do have the ability to essentially use our emergency lending authorities and the only limit on that will be how much backstop we get from the Treasury Department.”
The Fed cut its target interest rate to nearly zero earlier this month, but Mr. Powell said they have “policy room” elsewhere to support the economy.
• David Sherfinski can be reached at dsherfinski@washingtontimes.com.
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