US economy will escape depression: Fed chair Powell

Jerome Powell U.S. Fed chairman
Federal Reserve chairman Jerome Powell

Contrary to various doomsday predictions for the U.S. economy, Federal Reserve Chair Jerome Powell said his prognosis shows it will escape depression.

However, he admitted key indicators are hitting their bleakest levels since the 1930s.

The second quarter will likely show the brunt of the coronavirus pandemic’s fallout, the Fed chief said.

He spoke Sunday on NBC TV “60 Minutes”.

Gross domestic product shrinkage “could easily be in the 20s or 30s” percentage, he said.

And unemployment rate could peak between 20% and 25%, he added.

When asked if the US is on its way to a Great Depression-style slump, Powell said he doesn’t see that as “a likely outcome at all.”

The central bank chief noted the current downturn was driven by an external event, and that the financial system has withstood recent stresses.

He also praised governments and monetary authorities around the world for issuing relief with historic speed and creativity.

Powell estimates the economy can return to growth in the third quarter.

However, uncertainty around the virus’ trajectory and potential treatments could push a full rebound well into 2021, he added.

“In the long run, and even in the medium run, you wouldn’t want to bet against the American economy. This economy will recover,” Powell said.

“It may take a while. It may take a period of time. It could stretch through the end of next year.”

Trillions of dollars in fiscal and monetary aid played a critical role in stabilising the US, the central bank chief said.

The Fed has already implemented a collection of lending programs, rate cuts, and capital injections to boost liquidity and keep companies afloat.

Some economists fear the central bank may have exhausted its policy salvo too quickly, but Powell said the bank is “not out of ammunition by a long shot.”

Read the original in Business Insider