A full US economic recovery will not happen until there is a coronavirus vaccine, according to the chairman of Federal Reserve.
Jerome Powell, head of the central banking system of the US, believes that the economy of the US will slowly recover from the current downturn. However, the country needs a coronavirus vaccine before a full recovery.
“In the long run and even in the medium run, you wouldn’t want to bet against the American economy. The American economy will recover,” Powell said on CBS’ “60 Minutes."
“Assuming there’s not a second wave of the coronavirus, I think you’ll see the economy recover steadily through the second half of the year,” the Federal Reserve chairman said.
However, Powell noted that “for the economy to fully recover ... that may have to await the arrival of a vaccine.”
Lending programs
The Federal Reserve implemented a series of programs to keep markets running properly. The Fed also worked with the Treasury Department on different lending programs to help businesses and individuals affected by the coronavirus pandemic.
Moreover, the Fed is purchasing corporate and municipal bonds. These steps came as the unemployment crisis in the US worsens. The US now has a record of 36.5 million unemployment claims. The unemployment rate also soared to 14.7%.
“This is a time of great suffering and difficulty and it’s come on so quickly and with such force that you really can’t put into words the pain people are feeling and the uncertainty they are realizing,” Powell said.
In a separate interview, former National Economic Council Director Gary Cohn agreed with Powell’s view on the importance of a coronavirus vaccine. Cohn also noted the need to keep the economy running.
“If we really want to get the people back to work that Chairman Powell was talking about, we need to reopen the economy,” Cohn said.
Consumer fears
Other economists also agree with Powell when he said that consumers can dictate how the US economic recovery will accelerate.
They believe that individual psychology and consumer confidence all play a role in reviving the economy. The success of government in filling the income gap for unemployed individuals also matters.
Consumers’ discretionary spending for industries like dining, travel, and entertainment will determine how these parts of the economy will fare.
Consumers did not spend much and saved more than 13.1% of their income, the most in 45 years, when they were forced to stay inside their homes.
“The U.S. is a service economy so the resilience of the service economy is really central to the economic and stock market recovery. You can’t have an equity recovery if the service economy is not resilient. The key will probably be how much the service economy will be hurt by the need for physical distances,” said Tom Lee, founder of Fundstrat.
Lee said the part of the economy hit the most by social distancing accounts for $717 billion annually. It is about 6% of personal consumption expenditures.
