[Newsphopick=Kingsley Lim] The Federal Reserve Chairman held a press conference on Wednesday, explaining that the recovery of the US economy is dependent on America’s efforts of keeping the virus in check. Powell said that the Federal Reserve is doing its utmost and using the tools it has at its disposal to limit the damage of the coronavirus pandemic to the economy.
According to Powell, the US economy has begun to recover after it reopened but certain metrics show that the country’s business activity has not recovered to pre-virus levels.
“Many businesses opened their doors, factories restarted production, and more people left their homes to engage in various activities. As a result, household spending looks to have recovered about half of its earlier decline, although spending for services such as air travel and hotels, has shown much less of a pickup,” said Powell.
Powell said “In contrast, indicators of business fixed investment have yet to show a recovery. Even with the improved economic news in May and June, overall activity remains well below its level before the pandemic, and the contraction in real GDP in the second quarter will likely be the largest on record.”
Several prominent economists share the same view as Powell, as the US gross domestic product declined by 35% in the second quarter of the year after the coronavirus pandemic hit the global economy, representing one of the biggest shocks to the country in recent memory.
Powell also said that employment levels were severely affected by the pandemic fallout, and that Americans who were least able to ‘bear the burden’ have been most affected by the coronavirus.
“After precipitous drops in March and April, employment rose strongly in May and June as many people returned to work from temporary layoffs. As a result of the roughly 22 million jobs that had been lost, about one third had been regained as of the June payroll report,” said Powell.
Powell added that “The unemployment rate declined in May and June, but at 11. 1%, remains far above its level before the outbreak, and greater than the peak during the global financial crisis.”
Meanwhile, the unintended consequences of the stimulus by the Federal Reserve and the impact to the supply chain has created an inflationary environment which led to the rise in the prices of essential goods and services.
Powell said “For some goods including food, supply constraints have led to notably higher prices, adding to the burden for those struggling with lost income.”
He added that “More broadly, however, weaker demand, especially in sectors such as travel and hospitality that have been most effected by the pandemic, has held down consumer prices, and overall inflation is running well below our symmetric 2% objective.”
“A full recovery is unlikely until people are confident that it’s safe to reengage in a broad range of activities. The path forward will also depend on policy actions taken at all levels of government,” said Powell, suggesting that a full economic recovery is anything but certain.