COVID-19 2nd Wave would Undermine Recovery

US Federal Reserve Chairman Jerome Powell said that he was concerned about a second wave of COVID-19 infections, which he believes would dampen consumer confidence and hurt economic recovery.

“So there is clearly a risk of a second outbreak or a second wave. And you know, that will be challenging,” Powell made the remarks in a virtual discussion with former Fed Vice Chairman Alan Blinder, held by the Princeton University, on Friday.

He said a full recovery of the economy will really depend on people being confident that it is safe to go out and safe to engage in a broad range of economic activities, reports Xinhua news agency.

WASHINGTON, July 31, 2019 (Xinhua) — U.S. Federal Reserve Chairman Jerome Powell speaks during a press conference in Washington D.C., the United States, on July 31, 2019. U.S. Federal Reserve on Wednesday lowered interest rates for the first time since the 2008 global financial crisis, amid rising concerns over trade tensions, a slowing global economy and muted inflation pressures. The Federal Open Market Committee, the Fed\’s rate-setting body, trimmed the target for the federal funds rate by 25 basis points to a range of 2 percent to 2.25 percent after concluding its two-day policy meeting, in line with market expectation.

“That’s how the economy will recover,” he said.

“I think a second wave could be what would really undermine public confidence and might make for a significantly longer recovery, weaker recovery.”

When asked about the Fed’s stance on negative interest rates, Powell said “we don’t think that that’s an inappropriate tool here in the US”.

“I would say the evidence on whether it actually works is mixed,” he said.

“There were clearly some negative side effects.”

In response to the COVID-19 crisis, the Fed cut interest rates to near zero at two unscheduled meetings in March and began purchasing massive quantities of US treasuries and agency mortgage-backed securities to repair financial markets.

The central bank also announced a Main Street Lending Program, among other things, to help medium-sized businesses hit by the COVID-19 pandemic.

Businesses with up to 15,000 employees or up to $5 billion in annual revenue are eligible.

The Fed is only “days away” from making its first loans to midsize businesses under the new Main Street Lending Program, Powell said, noting that it will offer loans in sizes between half a million and $100 million.

The Commerce Department on Thursday revised down the GDP in the first quarter to a 5.0 per cent annualized contraction in a second estimate, 0.2 percentage point lower than the advance estimate in April.

Despite the revision, analysts say the figure still does not fully capture COVID-19’s economic damage.

Powell recently said the unemployment rate could peak around 20 per cent or 25 per cent, and the US economy could shrink dramatically in the second quarter, at an annualized rate of more than 20 per cent or 30 per cent.