The Fed: Powell expects ‘robust’ recovery once coronavirus is under control

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Federal Reserve Chairman Jerome Powell on Thursday said he thinks the economy can snap back once the coronavirus pandemic eases and Americans get back to work.

“There is every reason to believe that the economic rebound, when it comes, can be robust,” Powell said, in a webcast speech to the Brookings Institution.

“We entered this turbulent period on a strong economic footing and that should help support the recovery,” he added.

The Fed’s staff worried that any meaningful recovery might not start until 2021, according to minutes of the Fed’s mid-March policy meeting published on Wednesday, but the Fed chairman sounded more optimistic Thursday, saying most people think a recovery will start later this year.

Read: Fed staff’s worst-case scenario: No recovery until next year

Over the last month the Fed has cut its benchmark interest rate back down close to zero, begun buying U.S. Treasurys and mortgage debt and started setting up a dizzying array of lending programs to keep all corners of the financial markets operating.

Powell said the programs put in place are working and “market conditions have generally improved.”

Earlier Thursday, the Fed took additional actions to provide $2.3 trillion in loans to support the economy, including a “Main Street” loan program to mid-sized companies and supports to states and cities.

Read: Fed announces new lending plans to support economy

Powell said these programs would help build a bridge from the solid pre-coronavirus period to “a position of regained economic strength on the other side.” The high rate of unemployment will be temporary, he added.

Economists note the Fed can’t stop the economy from slowing sharply as the economy shuts down to avoid the spread of the virus.

Initial claims for state unemployment insurance soared again this week, with layoffs swelling to nearly 17 million since mid-March. Economists are forecasting a sharp contraction in GDP growth in the April-June quarter.

But the Fed programs are designed to blunt the damage caused to households, businesses, and financial markets.

Powell stressed that the Fed is using lending powers, not sending grants out to beneficiaries. Many Americans will need direct injections of funds and therefore there is a “big need” for fiscal spending from Congress. He said there was a need for further support and it would be a good idea.

Democrats and Republicans are at an impasse over the next aid package.

“We will continue to use these powers forcefully, pro-actively and aggressively until we are confident that we are solidly on the road to recovery,” the Fed chairman said.

The Fed chairman stressed the central bank would not be any hurry to taper and end its lending programs.

“The thing we will be looking for is to make sure the economy really is on a solid footing before we start pulling back,” he said

Powell sidestepped when asked about U.S. Treasury Secretary Steven Mnuchin’s suggestion that the economy could open by the end of May, saying he would leave that to health experts.

However, he stressed it was important to have a “national plan” on how Americans would return to work, saying it was important to avoid any “false starts.”

If this is done, there is “every reason to think that we can be back on the road to recovery fairly quickly,” he said.

U.S. equity benchmarks opened higher on Thursday with the Dow Jones Industrial Average DJIA, +1.22% up over 300 points in late morning trading.

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