Fed's Powell Says Sharp Downturn Won't Last

By Scott Horsley

Published May 18, 2020 at 7:48 AM PDT

Federal Reserve Chairman Jerome Powell says while the coronavirus is likely to cause Depression-era levels of unemployment, the economy should recover faster than it did in the 1930s.

Federal Reserve Chairman Jerome Powell warns it could be another year and a half before the U.S. recovers from the economic fallout of the coronavirus pandemic. But he says this will not be another Great Depression.

"It's going to be a very sharp downturn," Powell said in an interview with 60 Minutes that aired Sunday. "It should be a much shorter downturn than you would associate with the 1930s."

Powell, who is set to testify before the Senate Banking Committee on Tuesday, reiterated his view that Congress may need to authorize additional relief spending to keep families and businesses afloat until the virus is under control.

"We have the ability to borrow at low rates," Powell said. "This is the time when we can use that strength to our longer-run benefit."

House Democrats passed a relief bill totaling $3 trillion last week, but Republican Senate leaders dismissed the measure and President Trump described it as dead on arrival.

The central bank has been aggressive about lending money, both to finance federal spending and keep financial markets from seizing up. Powell said the Fed is prepared to go further if necessary.

"There's a lot more we can do. We're not out of ammunition by a long shot," he said. "There's really no limit to what we can do with these lending programs that we have."

Powell acknowledged that stay-at-home orders designed to slow the spread of the pandemic have already cost tens of millions of workers their jobs. Unemployment is likely to climb to Depression-era levels of 25%. But in contrast to the financial calamity of the last century, this was not brought about by underlying problems with the economy or the financial system.

"The economy was fine," Powell said. "The financial system was fine. We're doing this to protect ourselves from the virus. And that means when the virus outbreak is behind us, the economy should be able to recover substantially."

Investors appeared to welcome that assessment, along with news of encouraging results in a preliminary vaccine trial. The stock market opened sharply higher on Monday morning.

"In the long run, and even in the medium run, you wouldn't want to bet against the American economy," Powell said.