During an interview last night on “60 Minutes,” Federal Reserve Chairman Jerome Powell says the US economy could shrink by as much as 30% this quarter as the country continues to grapple with the economic fallout of the coronavirus pandemic.
But Powell says he believes we will avoid a “Depression-like” slowdown over the longer term, even though the country will likely see Depression-like unemployment rates.
He says the job losses will look like they were during the Depression when they were near 25%, saying “there’s a range of perspectives” on how bad unemployment will be, but the 20-25% figures “sound about right for what the peak may be.”
Powell does not think we will go through a depression, as any comparison between today and then overlooks some “very fundamental differences.”
He mentions a very active Federal Reserve and Congress that already has passed nearly $3 trillion in stimulus funds with another bill already in the works. Powell also says the cause of the downturn wasn’t an asset bubble or a traditional reason, it was an economic freeze in an effort to combat a viral outbreak.
He added, “In this case, you have governments around the world and central banks around the world responding with great force and very quickly. And staying at it. So I think all of those things point to what will be — it’s going to be a very sharp downturn. It should be a much shorter downturn than you would associate with the 1930s.”
Powell expects an economic rebound in the third quarter, but doesn’t expect a full recovery by year-end.
“I think there’s a good chance that there’ll be positive growth in the third quarter. And I think it’s a reasonable expectation that there’ll be growth in the second half of the year,” Powell said. “I would say though we’re not going to get back to where we were quickly. We won’t get back to where we were by the end of the year. That’s unlikely to happen.”
Recovery to be Quick?
The recovery wouldn’t necessarily be “V-shaped,” but Powell doesn’t expect it to take very long for our economy to get going again once the lockdown ends.
“We’ll get back to the place we were in February; we’ll get to an even better place than that. I’m highly confident of that. And it won’t take that long to get there.”
He does caution, however, that for our economy to completely recover, it will take Americans feeling safe to return to shopping, restaurants and their everyday life. And he says that may take a vaccine.
“For the economy to fully recover… that may have to await the arrival of a vaccine.”