“This time now is going to be a time of sharp contraction in economic activity, high unemployment. Personal consumption expenditures have declined sharply, business investment as well…We are going to see economic data for the second quarter that’s worse than any data we have seen for the economy,” Powell said in a media briefing via video conference after the release of the Federal Open Market Committee’s statement.
Late Wednesday, the FOMC left the federal funds rate target range unchanged at 0.00-0.25%, hours after data showed the US economy shrank 4.8% in Jan-Mar. This was the first time in six years the US economy had contracted and was the largest fall in quarterly GDP since the last quarter of 2008. The world’s largest economy should contract even further in Apr-Jun on account of the lockdown measures imposed to curb the spread of the deadly coronavirus. While the Fed has cut interest rates to near-zero levels, introduced new facilities to boost credit flow, and undertaken massive asset purchases to ensure financial stability, Powell exhorted the government to ensure there was no let up in expenditure.
“For many years…I have been an advocate for the need for the US to return to a sustainable path from the fiscal perspective at the federal level…This is not the time to act on those concerns,” Powell said. “This is the time to use the great fiscal power of the US to do what we can to support the economy and try to get through this with as little damage to the longer run productive capacity of the economy as possible. The time will come again, and reasonably soon I think, where we can think of a long-term way to get our fiscal house in order and we absolutely need to do that,” he added.
The US Congress has so far approved stimulus packages totalling nearly $3 trln in an attempt to manage the fallout of the coronavirus, which has claimed over 200,000 lives globally. The US is the worst-hit country, accounting for nearly a quarter of all casualties. Even as Powell called on the US government to continue spending, the FOMC said the central bank was “committed to using its full range of tools to support the US economy in this challenging time.”
