Federal Reserve chairman Jerome Powell put a damper on the Dow and other markets yesterday by warning that the economy is facing a prolonged recession and lasting damage if the federal government doesn’t provide additional financial support to businesses and individuals slammed by the impact of COVID-19.
“Hopes for a swift U.S. rebound from pandemic shocks collided with Powell’s ‘highly uncertain’ near-term outlook for the economy on Wednesday, even as businesses across the nation work to reopen,” write Joy Wiltermuth and Sunny Oh for MarketWatch.
“The Dow Jones Industrial Average fell 516.67 points, or 2.2%, to end at 23,247.97, while the S&P 500 index retreated 50.12 points, or 1.8%, ending at 2,820. The Nasdaq Composite Index finished at 8,863.17, off 139.38 points, or 1.6%,” they report.
“Powell’s blunt diagnosis was the latest indication that the trillions of dollars that policymakers have already funneled into the economy may not be enough to forestall lasting damage from a virus that has already shuttered businesses and thrown more than 20 million people out of work,” Jeanna Smialek, Jim Tankersley and Emily Cochrane write for The New York Times.
“Yet the warning comes as discussions of additional rescue measures have run aground, with Democrats proposing sweeping new programs and Republicans voicing concerns over the swelling federal budget deficit, which is projected to hit $3.7 trillion this year,” they add.
President Donald Trump “shot down” the Democrats’ package ahead of a planned House vote Friday, Sahil Kapur reports for NBC News.
“DOA. Dead on arrival. Of course, Nancy Pelosi knows that,” he told reporters Wednesday at the White House.
“About one-third of the $3 trillion legislation is relief for state, local and tribal governments, which many Republicans are resisting. The measure also includes assistance to essential workers, an extension of unemployment insurance beyond July, another round of $1,200 direct cash payments and various other measures that are unlikely to gain bipartisan support but serve as an opening bid for Democrats,” Kapur adds.
Meanwhile, “Powell underlined how knock-on effects from mass unemployment could lead to an even slower recovery. Powell made that point clearer by highlighting a Fed survey that shows 40% of households earning $40,000 or less lost a job in March. At least 20.5 million jobs have been lost so far in the United States according to official figures,” Colm Quinn writes for Foreign Policy.
“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 record shows that deeper and longer recessions can leave behind lasting damage to the productive capacity of the economy. Avoidable household and business insolvencies can weigh on growth for years to come,” Powell said in a Rev.com transcription of his speech given at a virtual event hosted by the Peterson Institute for International Economics.
“Long stretches of unemployment can damage or end workers’ careers as their skills lose value and professional networks dry up and leave families in greater debt. The loss of thousands of small and medium-sized businesses across the country would destroy the life’s work and family legacy of many businesses and community leaders and limit the strength of the recovery when it comes,” Powell continued.
“For a central banker who spent part of his career as a deficit hawk and has tried to avoid giving advice to elected officials, the remarks marked an extraordinary nod to the risks the U.S. economy is facing from the combined health and economic crisis brought on by the pandemic,” write Reuters’ Howard Schneider and Ann Saphir.
“Economists surveyed by The Wall Street Journal expect gross domestic product to shrink 6.6% this year, measured from the fourth quarter of 2019. That reflects a deeper slowdown than the 4.9% contraction predicted in last month’s survey,” Karen Langley writes for The Wall Street Journal.
“Powell said the Fed would ‘continue to use our tools to their fullest’ until the viral outbreak subsides. He gave no hint of what the Fed’s next steps might be,” reports the AP’s Christopher Rugaber.
“It was a soothing tone from Powell saying the Fed will do what they need to do, but it was also somber in that basically the Fed can’t do everything,” Baird investment strategist Willie Delwiche tells Rugaber.