7 weeks into lockdowns, Fed has a new, darker message
There is "nothing fundamentally wrong with our economy," Powell told viewers, while pointing out the U.S. central bank's outsized ability to take on lending risk and provide a financial "bridge" over the temporary economic weakness the country was experiencing.
Speaking after the Fed cut interest rates to near zero and rolled out a plan to backstop credit for small- and mid-sized companies, Powell emphasized the first order of business was to get the virus under control.
"The sooner we get through this period and get the virus under control, the sooner the recovery can come," said Powell, echoing remarks made the day before by Anthony Fauci, a top U.S. health official helping to coordinate the federal government's response to the coronavirus crisis.
At the time, Powell said he expected economic activity would resume in the second half of the year, and maybe even enjoy a "good rebound."
But on Wednesday, he offered a much more sober outlook.
In an interview webcast by the Peterson Institute for International Economics, Powell warned of an "extended period" of weak economic growth, tied to uncertainty about how well the virus could be controlled in the United States. "There is a sense, growing sense I think, that the recovery may come more slowly than we would like," he said.
Fauci, the director of the National Institute of Allergy and Infectious Diseases, was similarly somber when he told lawmakers earlier this week that the country was by no means in "total control" of the outbreak.
"There is a real risk that you will trigger an outbreak that you may not be able to control and, in fact, paradoxically, will set you back, not only leading to some suffering and death that could be avoided, but could even set you back on the road to try to get economic recovery," Fauci said.
The pandemic has killed more than 83,000 people in the United States so far, and many epidemiological models now point to a death toll that will surpass 100,000 in a matter of weeks.
Overall new cases of the virus continue to climb as well, as states end lockdowns and reopen local economies without the widespread, uniform testing and contact tracing policies that helped stamp out initial outbreaks in South Korea and Germany.
Powell's remarks Wednesday mirrored warnings this week from a clutch of regional Fed presidents who outlined the country's uncertain future.
U.S. central bank officials, and especially the Fed chief, historically choose their words carefully, to avoid alarming or exciting investors or causing swings in financial markets, making their universally dour outlook more remarkable.
St. Louis Fed President James Bullard said the situation could lead to a new Great Depression, with millions of so-far temporary job losses becoming permanent, and businesses failing "on a grand scale."
"We have to get better at this and get more risk-based with our health policy," Bullard said.
The U.S. economy can return to growth in the second half of the year, Cleveland Fed President Loretta Mester said on Tuesday, with more testing and contact tracing. If that happens, she said, "as some of the stay-at-home restrictions are lifted, the economy will begin to grow again in the second half of this year and unemployment will begin to move down."
However, a more pessimistic scenario, in which a surge in infections requires businesses to shut down again or the crisis leads to more bankruptcies or instability in the banking sector, is "almost as likely," she said.