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Author: Mauricio Carrillo
Senior Reporter
Mauricio Carrillo

Powell: US GDP to Collapse 30%, but Recovery expected in Q3 2020

Federal Reserve Chairman Jerome Powell said the United States economy could fall as much as 30% in the second quarter. Still, the country would avoid another depression and growth could return as soon as this very same year.

In an interview with 60 Minutes correspondent Scott Pelley at the Board Room at the Federal Reserve headquarters in Washington, D.C, Jay Powell answered the many questions Americans and people all around the world have about the impact of coronavirus in the United States economy, and therefore, the world as a whole.

Pelley asked Fed's chairman the "only one question that anyone wants an answer to:" When will the economy recover?

Powell linked the economic recovery to the management of related virus factors. "The sooner we get the virus under control, the sooner businesses can reopen." He basically acknowledged that specific data could not be given, but the economy will be hurt as long as the virus stays out of control.

And more important than that, the sooner people will become confident that they can resume certain kinds of activity. Going out, going to restaurants, traveling, flying on planes, those sorts of things. So that's really going to tell us when the economy can recover.

Even though he is not an epidemiological expert, Powell was asked about his thoughts on the reopening of economies in many states. The chairman affirmed that there is yet too soon to take an opinion on that as people will need to take measures to protect themselves. "We're going to see what happens with that."

He added that the economy would see the beginnings of the recovery as individuals and businesses reopen and people get back to work. However, Powell said that a second wave of the virus would be devastating for the economy. "But if we do, then the economy can continue to recover."

Will it be Enough?

Powell also commented about the measures taken by Congress and the Federal Reserve itself. He cheered congress' fast actions on stimulus packages, calling it a great deal. However, he raised the question about if the efforts will be enough to contain most of the damage caused by COVID-19.

Powell recommended "policies that help businesses to avoid insolvencies and the same for individuals, but he also acknowledged that it is not the Federal Reserve to recommend specific measures.

In that framework, however, Powell stated the Fed has enough power and ammunition to help the economy. "There's really no limit to what we can do in lending programs."

In other words, we can expect more unlimited programs and the Federal Reserve protecting its right to pump all the money in the economy in case of necessity.

Unemployment at 25%

Powell highlighted that the 20 million people who have been laid off are considered "temporarily unemployed," meaning they will get back their jobs once the economy has reopened.

So I would say the peak unemployment might be in the next couple of months. And then you might see it coming down over the second half of the year.

Powell stated.

The chairman said that a 20% or 25% unemployment rate sounds about right as a peak in the labor market.

A 30% Contraction in GDP, But Recovery as Soon as 2020

Fed Chairman Powell told Pelley that the United States GDP is expected to contract between 20 and 30 percent in the second quarter, but the economy will avoid a depression plunge over the long term.

However, given the nature of the social and economic difficulties, the Fed expects the recovery to start soon and the country would see growth in the third quarter of 2020.

I think there's a good chance that there'll be positive growth in the third quarter. And I think it's a reasonable expectation that there'll be growth in the second half of the year," Jay Powell pointed out. "I would say though we're not going to get back to where we were quickly. We won't get back to where we were by the end of the year. That's unlikely to happen.

To read the full transcript of the interview, please see: Fed Chair Jerome Powell's 60 Minutes interview on economic recovery from the coronavirus pandemic.

Meet The Author
Mauricio Carrillo
Mauricio Carrillo
Senior Reporter

Mauricio is a newer member of the team and a very welcome addition. He is a financial journalist and trader with over ten years of experience in stocks, Forex, commodities, and cryptocurrencies. This experience means he has an excellent understanding of the markets and current events.

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