Washington, Apr 29 (efe-epa).- The chairman of the Federal Reserve on Wednesday forecast an unprecedented drop in economic activity in the United States in the second quarter and said persistent uncertainties surrounding the novel coronavirus make it difficult to predict how deep the downturn will be and how long it will last.
“It’s clear the effects on the economy are severe … Overall economic activity will likely drop at an unprecedented rate in the second quarter,” Jerome Powell said at a press conference after the latest two-day meeting of the Fed’s monetary policy-making body, the Federal Open Market Committee (FOMC), which voted to leave its benchmark interest rate unchanged at a range of between 0 percent and 0.25 percent.
“Both the depth and duration of the economic downturn are extraordinarily uncertain, and will depend in large part on how quickly the virus is brought under control,” he added.
The US now leads the world in confirmed coronavirus cases – more than a million – and deaths attributed to Covid-19, approaching 60,000. A full return to normal activity is not expected until June at the earliest, pointing to the strong possibility that gross domestic product (GDP) will take a much larger hit in the second quarter.
Restrictions on movement and closures of non-essential businesses began last month and seem likely to remain in place, at least in states such as California and New York, until the end of May.
US GDP shrank 4.8 percent in the first quarter, its worst performance since plummeting 8.4 percent in the final quarter of 2008 at the height of the Great Recession, the Commerce Department said Wednesday.
The world’s largest economy grew 2.1 percent in 2019.
“The decline in first quarter GDP was, in part, due to the response to the spread of Covid-19, as governments issued ‘stay-at-home’ orders in March. This led to rapid changes in demand, as businesses and schools switched to remote work or canceled operations, and consumers canceled, restricted, or redirected their spending,” the department said.
Consumer spending, which accounts for more than two-thirds of economic activity in the United States, plunged 7.6 percent in the first quarter as more than 26 million workers filed claims for unemployment benefits amid the coronavirus shutdown.
It was the steepest decline in personal expenditures in 40 years.
In his remarks at Wednesday’s press conference, Powell said the Fed was prepared to use “all available tools to support the US economy to get through this challenging time.”
Having already cut interest rates to zero, the Fed has focused on ensuring liquidity for the financial markets, to the tune of more than $3 trillion, and offering loan guarantees to state and municipal government.
But the Fed chairman said there is a limit to what monetary policy can achieve and stressed the need for Congress to provide an further fiscal boost, above and beyond the four separate coronavirus relief packages it has already passed with a cumulative value of nearly $3 trillion.
That congressionally approved money is going toward increasing jobless benefits, support to businesses and direct payments to individuals, among other measures, while a fifth stimulus package is expected to provide federal funding for struggling state and local governments.
“Many borrowers will benefit from our programs as well as the overall economy. But for many others, getting a loan that may be difficult to repay may not be the answer. In these cases, direct fiscal support may be needed,” Powell said.
The Fed’s next policy meeting is scheduled for June 9-10, at which time the US central bank will unveil its new macroeconomic projections. EFE-EPA