WASHINGTON – Jerome Powell says the Federal Reserve would provide essentially unlimited lending to support the economy as long as it is damaged by the viral outbreak.
In an interview Thursday on NBC's “Today” show, the Fed chair said the bank's efforts are focused on helping the economy recover quickly once the threat from the virus has passed.
Powell also acknowledged that the economy “may well be” in a recession but said that this is a unique downturn in that it was caused by efforts to control the disease. The economy itself was strong before the outbreak began, he said.
“If we get the virus spread under control fairly quickly, then economic activity can resume, and we want to make that rebound as vigorous as possible,” Powell said.
The Fed has taken numerous steps this month to bolster lending and the economy including setting up emergency programs intended to ensure that banks can keep lending to companies and city and state governments.
Powell said the Fed's ability to lend is somewhat constrained by the amount of capital provide by the Treasury to offset any credit losses. He said the Fed can lend $10 for every $1 of cash that the Treasury provides.
The economic rescue bill approved by the Senate early Thursday includes $425 billion that the Treasury could use to backstop the Fed. That would allow the Fed to boost its lending programs to an astronomical $4.25 trillion.
“Wherever ... credit is not flowing, we have the ability in these unique circumstances to temporarily step in and provide those loans and we will keep doing that, aggressively and forthrightly,” Powell said.
Growth likely last for a while
WASHINGTON – The economy grew by a moderate 2.1% in the fourth quarter of last year, but many economists believe that will be the last positive growth seen for some time as the country endures a sharp contraction due to the coronavirus.
The Commerce Department said Thursday in its third and final look at the fourth quarter that growth was unchanged from its previous estimate but that the components were slightly altered with consumer spending slightly stronger but government spending and business investment a bit lower.
Many economists believe GDP will turn negative in the current January-March quarter, based on the sudden stop to economic activity that is now occurring. Some see a drop of around 6% with much bigger declines in the second quarter. A recession is typically defined as two consecutive quarters of negative GDP and many believe the country has already entered a downturn.
– Associated Press