The president of the Federal Reserve (Fed) Jerome Powell, has described the current recession in the United States caused by the coronavirus as "significantly worst since World War II". For this reason, it has asked for more fiscal and monetary stimuli to mitigate the impact of the pandemic.
"Additional fiscal support could be expensive, but it's worth it if it helps prevent long-term economic damage and leads to a stronger recovery.. It is a commitment for our politicians, who exercise tax and spending powers, "he noted in a conference call at the Peterson Institute for International Economics.
For Powell, the scope and speed of this recession are without modern precedent. "We are seeing a sharp decrease in economic activity and employment, and the labor gains of the last decade have already been erased. Since the pandemic came into effect just two months ago, more than 20 million people have lost their jobs, "he explained.
Therefore, although it has considered that the economic response has been "timely as appropriate", added that "it may not be the final chaptergiven that the way forward is highly uncertain and subject to significant negative risks. "
Economic forecasts are uncertain at best, and the virus raises a new series of unanswered questions: How quickly and sustainably will it be controlled? Can new outbreaks be prevented as social distancing measures expire? How long will it take to build confidence and resume normal spending? And what will be the scope and timing of new therapies, tests, or a vaccine?
In his opinion, the answers to these questions will go a long way in setting the time and pace of economic recovery. "Since the responses are currently unknown, policies should be ready to address a range of possible outcomes.", has said.
The deeper and longer recessions they can leave lasting damage to the productive capacity of the economy, and the insolvencies of households and companies may weigh on growth in the coming years, he warned. And long periods of unemployment can harm or affect the career of workers and the debt of families.
Thus, the danger is that a prolonged recession and a weak recovery may discourage business investment and expansion, and further limit job creation, as well as capital stock growth and the pace of technological advance. "The result could be a prolonged period of low productivity growth and stagnant income."he has indicated.
Thus, Powell has pointed out that it is necessary to avoid lasting damage, so the Fed will continue to use its "tools to the fullest until the crisis is over and the economic recovery is underway". Although he recalled that "the Fed has lending powers, not spending powers" and that its measures generate liquidity but it does not avoid the solvency problems of many companies. For this reason, he has insisted on the need for more direct economic and fiscal stimuli by Congress.
On the possibility of continuing to stimulate the economy through negative interest rates, Powell has once again completely ruled out that possibility. "The view on negative rates has not changed, it is not something we are considering. All members of the Federal Open Market Committee do not believe that negative rates are an appropriate monetary policy tool for the United States. We believe that our tools work, "he concluded.
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