Fed vice chair: US economy will take years to fully recover from coronavirus

Federal Reserve Board Vice Chairman Richard Clarida said Wednesday that it could take the U.S. economy years to fully recover from the coronavirus pandemic and would likely require further fiscal support from President Trump and Congress to make it out of the woods.

In a Wednesday speech, Clarida said it would likely take another year for the country’s gross domestic product (GDP) to recover to its peak in 2019 and even longer for the unemployment rate to fall back down to its pre-pandemic level of 3.5 percent.

“While economic recovery since the spring collapse has been robust, let us not forget that full economic recovery from the COVID-19 recession has a long way to go,” Clarida said. “It will take some time to return to the levels of economic activity and employment that prevailed at the business cycle peak in February, and additional support from monetary — and likely fiscal — policy will be needed.”

Clarida’s warnings came with an overall optimistic, if uncertain, forecast for the U.S. economy, which had suffered the steepest contraction since the Great Depression upon the onset of the coronavirus pandemic.

More than 22 million Americans lost their jobs between March and April as the pandemic wiped out nearly a decade of employment gains. The U.S. economy shrunk at nearly a 33 percent annualized rate in the following three months, shattering records for the quickest economic decline since World War II.

Clarida said that while the COVID-19 downturn “was by far the deepest one in postwar history … it also may go into the record books as the briefest recession in U.S. history.”

He cited the recovery of nearly half the jobs lost to the pandemic between May and September of this year, a decline in the unemployment rate from 14.7 percent in April to 7.9 percent last month and a surprising rebound in consumer spending.

Clarida also noted that the U.S. was on track to recover from the coronavirus recession at a quicker rate than its rebound from the Great Recession in 2008. The U.S. took roughly eight years to return to pre-crisis levels of unemployment and inflation, Clarida said, whereas the recovery from the coronavirus recession may take just until the end 2023.

Even so, Clarida warned, those projections come amid deep uncertainty about the prospects for the fiscal support and progress fighting the health crisis that are essential to a full recovery.

The Trump administration and Speaker Nancy Pelosi (D-Calif.) have less than three weeks to work out a deal on another coronavirus aid bill before Election Day and face substantial disagreements over state and local aid and testing funding. Senate Republicans have also blasted the administration’s offer of a $1.8 trillion deal as too expensive, raising doubts about their potential support for a more expensive bill sought by Pelosi. 

Centers for Disease Control and Prevention (CDC) Director Robert Redfield also warned governors on a call Tuesday that small gatherings are increasingly becoming a source of coronavirus spread through the country, a troubling sign given the impending holiday season and colder weather.