By Greg Robb, MarketWatch
The economic recovery may be more gradual than hoped, Fed Chairman Jerome Powell said Wednesday, in a grim review of the damage done by the coronavirus pandemic.
In talks with business contacts across the nation “what comes though is there is a growing sense I think that the recovery may come more slowly than we would like,” Powell said in remarks to the Peterson Institute for International Economics.
“The path ahead is both highly uncertain and subject to significant downside risks,” he said.
A deep and lasting recession could create lasting damage to the economy.
“The passage of time can turn liquidity problems into solvency problems,” he said.
More government aid to households and businesses may be “worth it” to avoid these potential problems, the Fed chairman said.
“Additional fiscal support could be costly but worth it if it helps avoid long-term economic damage and leaves us with a stronger recovery,” Powell said.
The Fed chairman said it was ultimately up to Congress and the administration to consider this tradeoff.
The Fed chairman rejected using negative rates as a policy tool.
In his prepared remarks, Powell did not mince words about the damage the economy is facing from the lockdown put in place in mid-March to slow the spread of the coronavirus.
“The scope and speed of this downturn are without modern precedent, significantly worse than any recession since World War II,” he said.
The Labor Department reported last week that 20.5 million Americans lost their job in April and the unemployment rate rose to 14.7%.
Powell said a Fed survey has found that 40% of people in households making less than $40,000 a year and were counted on the payrolls in February had lost that job in March.
“This reversal of economic fortune has caused a level of pain that is hard to capture in words,” the Fed chairman said.