MercoPress. South Atlantic News Agency

Fed chief forecasts US economy could easily contract 20 to 30% this quarter

Powell said that more than 30 million jobs were destroyed in the world's top economy, as businesses were shuttered nationwide amid efforts to stop Covid 19

The business shutdowns caused by the coronavirus pandemic could “easily” cause the US economy to collapse by 20 to 30% this quarter, Federal Reserve Chair Jerome Powell said on Sunday. Data show more than 30 million jobs were destroyed in the world's top economy, as businesses were shuttered nationwide amid the efforts to stop the spread of COVID-19.

While unemployment could peak at 20 to 25%, a level not seen since the 1930s, Powell said he remains confident the country will avoid another depression.

“The data we'll see for this quarter, which ends in June, will be very, very bad. There'll be a big decline in economic activity, big increase in unemployment,” Powell told the CBS program “60 Minutes.”

Beyond the dismal figures, “what we're really looking at is getting the medical data,” he said, which is critical to determining when economic activity can resume. “I think there's a good chance that there'll be positive growth in the third quarter,” he said.

But he warned it may take time to return to normal and the US may not see a full recovery without a vaccine to treat COVID-19. “I think you'll see the economy recover steadily through the second half of this year,” Powell said.

But “it's going to take a while for us to get back,” he said. “It could stretch through the end of next year. We really don't know.”

Asked about the need for a vaccine to treat the illness and put a stop to the coronavirus pandemic, Powell stressed the importance of consumers to the economy.

“For the economy to fully recover, people will have to be fully confident, and that may have to await the arrival of a vaccine,” he said.

The Fed rushed in even before the economic lockdowns were fully in place, slashing the benchmark lending rate and pumping trillions of dollars into the financial system and into lending programs to support corporations, small- and medium-sized businesses and state and local governments.

The central bank chief said the Fed is prepared to do more to support the recovery.

But he repeated his message that the economy likely will need more government spending to support workers and businesses to allow the economy to recover, beyond the nearly US$3 trillion already approved by Congress.