Calling the scope and speed of the current economic downturn “without modern precedent, significantly worse than any recession since World War II,” Jerome Powell, chair of the Federal Reserve, said that the United States is currently seeing “a severe decline in economic activity and in employment, and already the job gains of the past decade have been erased.”
Powell made the statement in remarks via webcast to the Peterson Institute for International Economics in Washington, D.C., on Wednesday, and outlined the measures the Federal Reserve has taken to offset the economic effects of the COVID-19 pandemic.
“Governments around the world have responded quickly with measures to support workers who have lost income and businesses that have either closed or seen a sharp drop in activity,” Powell said. “The response here in the United States has been particularly swift and forceful.”
Powell noted that Congress has provided “roughly $2.9 trillion in fiscal support for households, businesses, health-care providers, and state and local governments — about 14 percent of gross domestic product.” And while the coronavirus economic shock appears to be the largest on record, “the fiscal response has also been the fastest and largest response for any postwar downturn,” he said.
The Federal Reserve acted with “unprecedented speed and force,” and after cutting the federal funds rate to close to zero, took “a wide array of additional measures to facilitate the flow of credit in the economy,” Powell said.
Saying that the Federal Reserve “takes actions such as these only in extraordinary circumstances, like those we face today,” Powell noted some of the measures that the agency has taken in an effort to help the economy, including:
- outright purchases of Treasuries and agency mortgage-backed securities to restore functionality in these critical markets;
- liquidity and funding measures, including discount window measures, expanded swap lines with foreign central banks, and several facilities with Treasury backing to support smooth functioning in money markets.
- with additional backing from the Treasury, facilities to more directly support the flow of credit to households, businesses, and state and local governments; and
- temporary regulatory adjustments to encourage and allow banks to expand their balance sheets to support their household and business customers.
Despite the actions taken to date to help the economy, Powell suggested that more measures need to be taken to avoid continued economic distress. The recovery “may take some time to gather momentum, and the passage of time can turn liquidity problems into solvency problems,” he said. “Additional fiscal support could be costly, but worth it if it helps avoid long-term economic damage and leaves us with a stronger recovery. This tradeoff is one for our elected representatives, who wield powers of taxation and spending.”
The full transcript of Powell’s remarks can be accessed on the Federal Reserve website.