May 13, 2020
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Federal Reserve chairman warns of a sustained recession from pandemic

Jacquelyn Martin | AP
Jacquelyn Martin | AP
In this March 3, 2020, file photo, Federal Reserve Chair Jerome Powell pauses during a news conference in Washington. Powell provided a bleak outlook for the U.S. economy in remarks Wednesday, and urged Congress and the White House to act further to offset the damage from the viral outbreak.

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WASHINGTON — Federal Reserve Chair Jerome Powell is warning of the threat of a prolonged recession resulting from the viral outbreak and is urging Congress and the White House to act further to prevent long-lasting economic damage.

The Fed and Congress have taken far-reaching steps to try to counter what is likely to be a severe downturn resulting from the widespread shutdown of the U.S. economy. But Powell warns that there still could be widespread bankruptcies among small businesses and extended unemployment for many people.

“Deeper and longer recessions can leave behind lasting damage to the productive capacity of the economy,” the chairman said in prepared remarks before an online discussion with the Peterson Institute for International Economics. “Avoidable household and business insolvencies can weigh on growth for years to come.”

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The U.S. government “ought to do what we can to avoid these outcomes, and that may require additional policy measures,” Powell said.

He said the Fed will “continue to use our tools to their fullest” until the viral outbreak subsides but gives no hint of what the Fed’s next steps might be.

Powell repeated his previous warnings that the Fed can lend money to solvent companies to help carry them through the crisis. But a longer downturn could threaten to bankrupt previously healthy companies without more help from the government.

Greater support from government spending or tax policies “could be costly, but worth it if it helps avoid long-term economic damage and leaves us with a stronger recovery,” he said.

 


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