Fed chief: Full recovery from recession ‘unlikely’ until coronavirus contained

Federal Reserve Chairman Jerome Powell told lawmakers Tuesday that a full recovery from the pandemic-driven recession is “unlikely” until Americans no longer fear contracting COVID-19, despite recent strong economic data.

In his testimony before the Senate Banking Committee on Tuesday, the Fed chief warned that the U.S. economy will continue to suffer as long as the coronavirus lingers.

“Recently, some indicators have pointed to a stabilization, and in some areas a modest rebound, in economic activity. With an easing of restrictions on mobility and commerce and the extension of federal loans and grants, some businesses are opening up, while stimulus checks and unemployment benefits are supporting household incomes and spending,” Powell said.

“That said, the levels of output and employment remain far below their pre-pandemic levels, and significant uncertainty remains about the timing and strength of the recovery,” he continued. “Until the public is confident that the disease is contained, a full recovery is unlikely.”

Powell’s appearance before the Banking Committee comes after a series of surprisingly strong economic data has boosted hopes of a quicker-than-expected rebound from the recession caused by COVID-19.

The U.S. added 2.5 million jobs in May as 2.7 million workers returned from temporary layoffs to stores that had recently been allowed to reopen, according to the Labor Department. Retail and food service sales surged by 17.7 percent in May as states slowly peeled back restrictions imposed to slow the spread of COVID-19.

May’s rebound in hiring and consumer spending has fueled hopes that the U.S. has already reached the nadir of the pandemic-driven economic collapse. The start of the recovery has also left some GOP leaders questioning the need for a further stimulus bill after already spending more than $3 trillion in economic rescue since March.

But Powell has consistently warned that the unprecedented scale and speed of the downturn, along with its unique toll on the most vulnerable Americans, will take months if not years to reverse.

“Even after the unexpectedly positive May employment report, nearly 20 million jobs have been lost on net since February, and the reported unemployment rate has risen about 10 percentage points, to 13.3 percent,” Powell said Tuesday.

“The burden of the downturn has not fallen equally on all Americans. Instead, those least able to withstand the downturn have been affected most,” he continued. “Low-income households have experienced, by far, the sharpest drop in employment, while job losses of African Americans, Hispanics, and women have been greater than that of other groups.”

Powell also warned that the collapse of small businesses with few financial resources to weather an extended downturn could deeply harm the U.S. economy and society.

“If a small or medium-sized business becomes insolvent because the economy recovers too slowly, we lose more than just that business. These businesses are the heart of our economy and often embody the work of generations,” he said.

Powell’s warnings are a stark contrast to the confidence and optimism exuded by President Trump, White House officials and Republican lawmakers. Trump and top White House economic adviser Larry Kudlow both ripped Powell last week after the Fed chief warned that the U.S. faced “a long road” to a full recovery from the pandemic.

“The Federal Reserve is wrong so often. I see the numbers also, and do MUCH better than they do. We will have a very good Third Quarter, a great Fourth Quarter, and one of our best ever years in 2021. We will also soon have a Vaccine & Therapeutics/Cure. That’s my opinion. WATCH!” Trump tweeted Thursday as the stock market plunged.

Kudlow also urged Powell later that day to project more confidence in the economy.

“I do think Mr. Powell could lighten up a little when he has these press offerings. You know, a smile now and then, a little bit of optimism,” he said on Fox Business Network.

Updated at 10:50 a.m.